“CAPITAL INSIGHTS” with Jack Kern
- Sep 16, 2008
Beware the Ides of September?
What a difference a couple years can make. Between Bear Stearns becoming a term of art, as in "he got Bears Stearned," and now the news being overrun with banks failing (as many as 20 with more on the way), it just got more interesting. In the interest of full disclosure, I used to work someplace that was taken over by Lehman Brothers Holdings, so no, I’m not bitter. (Ha, Ha, Ha, Ha, oops, I mean, gee what a shame…) It’s important to remain neutral, so I’m going to share something that might surprise some of you. I saw it coming. Being on the inside of this industry you sometimes get the feeling that excesses run deep and that responsibility won’t ever catch up with those that have avoided it. Some call it karma. I call it foolishness.
To have Bear Stearns, Washington Mutual, AIG, Lehman Brothers Holdings and a number of others on the horizon appearing to be in great difficulty begs the question – why? Industry pundits are selling the line that it was the irrational exuberance of easy credit and less than sophisticated investors seeking that extra basis points yield. I think it’s something else. There was and still is, I feel a fundamental belief that you can pass the problem onto someone else, and in the end, mitigate your own losses and ultimately your own responsibility. No one now believes that subprime lending was such a good idea, so it went into CMBS, enriching along the way, a feedlot of Wall Street types, who remained largely untouched by the failing. Until now. These variously complex financial instruments are now the province of U.S. and European based investors that have no belief in their negotiated. Rather than just chasing yield, many of these institutions may be running for their own business survival. If the policy response from the Fed isn’t carefully handled, then a recession in the United States will be the least of our problems.
I’m headed off to MultiHousing World in Denver this week. If you’re going to be there, I hope we get the chance to meet and chat a bit. I promise not be territorially negative, but I can assure you I have an opinion and I’d like to hear yours. Stay tuned…