Archive for the ‘Financing’ Category
Monday, March 8th, 2010
Economic indicators show that the recession is over. This is the opinion of Rick Mattoon, a senior economist and advisor in the economic research department of the Federal Reserve Bank of Chicago and a lecturer at the Kellogg School of Management at Northwestern University. Rick’s primary research focuses on issues facing the Midwest regional economy.
In a recent interview for the Alter NOW Podcasts, Mattoon warned that most people probably don’t feel like the nation is coming out of a recession because there are few signs of job creation or easier access to credit. One of the major concerns economists have is that this will be a double-dip “W-shaped” recession because once the bump from the $787 billion stimulus ends, there will be scant pent-up consumer demand for products and services to take the place of government spending.
One positive sign is an uptick in hiring by temporary employment agencies, which usually is considered to be a good harbinger of what future demand will be. Another interesting theory about this particular recession in terms of jobs is the idea that companies adjusted their employee levels much more aggressively at the beginning of this cycle. As a result, they are operating at extremely lean levels and so may hire earlier rather than later.
One problem is that there is a skills mismatch in the economy. Many people who have lost their jobs don’t possess the right skills to find employment in growth industries such as clean energy or healthcare. The challenge is training these individuals to bring their skills up to par.
Rick Mattoon: Is the Recession Over? :
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Tags: American Recovery and Reinvestment Act, Chicago, deficit, Federal Reserve Bank, GDP, Great Recession, inflation, Rick Mattoon, stimulus bill, treasury bills, wage growth
Posted in Economics, Financing, General, Green, Healthcare, Office, Residential | No Comments »
Thursday, March 4th, 2010
The last 30 years have seen a boom for skyscraper construction because the cost of borrowing money had declined significantly. When investors borrow money to purchase assets, they send prices higher. The problem is that this borrowing makes the markets susceptible to busts when investors sell assets to pay their debts. The recent financial crisis was one result of this process, with the debts larger and the price swings broader than has been seen in the past three decades. According to central bank critics, focusing on consumers - and not on the dangers of asset-price inflation - have encouraged bubbles by keeping interest rates artificially low.
The central bank critics argue that the desire to end the credit crunch may be causing authorities to make the same mistake by maintaining short-term interest rates at less than one percent in a majority of the developed world. Developing markets, thanks to their tendency to emulate richer nations, have the same cheap-money policies. The irony is that many of these economies are growing faster than those in the developed world.
For the commercial real estate industry, the bubble means that it is unlikely that we will see more high-profile skyscrapers like the Burj Dubai or Petronas Towers under construction very soon. All three projects were started during financial booms and delivered in hard economic times.
Listen to our interview with Rick Mattoon, a senior economist and economic advisor in the economic research department of the Federal Reserve Bank of Chicago, on the dangers of asset price inflation. Click here for the podcast.
Tags: Asset-price inflation, Ben Bernanke, Burj Dubai, central banks, Federal Reserve, financial markets, interest rates, investors, MSCI index, Petronas Towers, Skyscraper construction, Wall Street crash
Posted in Development, Economics, Financing, Office | No Comments »
Thursday, February 25th, 2010
Commercial mortgage-backed securities (CMBS) are expected to remain below $15 billion in 2010 as borrowers cope with falling property values. According to Alan Todd, a JPMorgan analyst, debt sales backed by CBD office, hotel and shopping center loans could be as low as $10 billion this year. Aaron Bryson of Barclays Capital is more optimistic, predicting transactions totaling approximately $15 billion for the year.
The federal government has promised to revive the $700 billion CMBS market, even as property values fall and securing loans is difficult. In 2007, a record $237 billion of debt was sold. That fell precipitously in 2008 to just $12 billion and even further to $1.4 billion in 2009. Activity isn’t expected to increase until the second half of 2010.
“The banks would like to lend,” Todd noted. “There are fewer properties to lend against.” He pointed out that many owners went heavily into debt during the boom and now cannot locate properties not currently encumbered to lend against. The dearth of new loans cuts off funding to borrowers whose debt is maturing. Approximately two thirds of loans bundled and sold as securities - totaling $410 billion — may require additional cash as property values fall and underwriting standards get tougher, according to Deutsche Bank AG research.
Moody’s Investor Services reports that commercial real estate prices in the United States are 42.9 percent lower than their 2007 peak.
Tags: Barclays Capital, Bloomberg, CMBS, Deutsche Bank AG, JP Morgan Chase, Moody's Investor Services, treasury notes
Posted in Economics, Financing | No Comments »
Monday, February 22nd, 2010
An independent audit released by the bipartisan Congressional Oversight Panel (COP) has found the $700 billion Troubled Asset Relief Program (TARP) to be effective, so much so that the Department of the Treasury has extended it to October 3, 2010. Treasury Secretary Timothy Geithner plans to use the remaining funds to assist families facing foreclosure and give loans to small businesses.
The COP was unable to fully gauge TARP’s impact because of other forces such as the $787 billion American Recovery and Reinvestment Act, tax cuts and actions by the Federal Reserve and Federal Deposit Insurance Company. “Even so, there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis,” according to the report. “Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.”
That said, after 14 months of TARP, the panel admits that problems remain. Banks are still skittish about making loans, toxic mortgage-related assets are still sullying banks’ balance sheets and smaller banks are susceptible to difficulties in the commercial real estate sector. And, with 13 million additional home foreclosures expected over the next five years, “TARP’s foreclosure mitigation programs have not yet achieved the scope, scale and permanence necessary to address the crisis.”
Repayments from banks that received TARP dollars are expected to total $116 billion, including $45 billion that is being returned by Bank of America. The government is likely to receive as much as $175 billion in repayments from companies it rescued by the end of 2010.
Tags: AFL-CIO pension fund, American Recovery, bailouts, Bank of America, Congressional Oversight Panel, department of treasury, Federal Deposit Insurance Company, Federal Reserve, Harvard Law School, Main Street, President Obama, Securities and Exchange Commission, TARP, Timothy Geithner, Wall Street
Posted in Economics, Financing | No Comments »
Wednesday, February 17th, 2010
Federal Reserve Chairman Ben Bernanke is starting to look at ways to back off from the central bank’s heroic efforts to keep the nation’s economy afloat through the financial crisis of the past 18 months. The trick to raising short-term interest rates, which have been at historic lows for more than a year, is to time them with extraordinary precision to avoid new damage to the still-fragile economy.
At present, the Fed has $2.29 trillion on its balance sheets, an increase from the $934 billion reported in September, 2008, when the financial crisis was at its worst. Bernanke plans to sell some of the Fed’s mortgages, Treasuries and debt by offering reverse repurchasing agreements. Under these arrangements, the Fed sells its securities to a third party while agreeing to re-buy them at some point in the future.
The Fed’s next step is to sell banks and financial firms the equivalent of certificates of deposit. In these cases, the Fed gets a portion of the bank’s reserves in exchange for paying interest at a fixed rate. Called a “term deposit facility,” these deposits would be auctioned off and banks couldn’t count their investment in the Fed as cash or reserves.
“These programs, which imposed no cost on the taxpayer, were a critical part of the government’s efforts to stabilize the financial system and restart the flow of credit,” Bernanke said in testimony at a Capitol Hill hearing. “As financial conditions have improved, the Federal Reserve has substantially phased out these lending programs.”
Tags: American Enterprise Institute, American International Group, Bear Stearns, Ben Bernanke, central bank, congress, department of treasury, exit strategy, Fannie Mae, Federal Reserve, financial crisis, Freddie Mac, Ginnie Mae, interest rates, JP Morgan Chase, University of Chicago
Posted in Economics, Financing | No Comments »
Tuesday, February 16th, 2010
Congressman Barney Frank (D-MA) wants to scrap Fannie Mae and Freddie Mac in favor of an entirely new mortgage-financing system. According to Frank, Chairman of the House Financial Services Committee and who previously supported the programs, “The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current forms and coming up with a whole new system of housing finance.”
Fannie Mae and Freddie Mac, which back a majority of the nation’s home loans, buy mortgages from lenders, insure them against default and supply new money to create new loans. Thanks to growing losses on these loans that threatened the health of Fannie Mae and Freddie Mac, the federal government took control of the programs in September 2008. Since their seizure, Fannie and Freddie have been run by regulators and kept alive by $110.6 billion in taxpayer money. Frank says that Congress needs to decide what to do with Fannie’s and Freddie’s remaining shareholders, as well as investors in the companies’ $5.4 trillion in mortgage bonds and $1.7 trillion in unsecured corporate debt.
Fannie Mae and Freddie Mac profit by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders. They currently own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made in 2009.
“We’re going to look at the whole question of housing finance,” Frank said. “Sorting out the function of promoting liquidity in the market, and also the secondary market in general but then also doing some kind of subsidy for affordability.”
Fannie/Freddie were caught in the eye of the subprime meltdown. In February of 2007, the residential mortgage-backed securities market crashed with sales plummeting 90 percent. While reform is needed, Fannie and Freddie operate like a public option - by making home ownership more affordable and creating competition to commercial banks. A positive step is the Deed for Lease program. After foreclosure - at 57,000 homes in the first half of 2009 - the new program allows owners to lease their homes and avoid foreclosure.
Artificially creating/guaranteeing a market for home loans has lost billions. Hopefully, whatever entity replaces Fannie and Freddie will be prohibited from contributing to congressional campaigns and PAC’s.
Tags: Barney Frank, congress, Deed for Lease program, Fannie Mae, Freddie Mac, House Financial Services Committee, house of representatives, Massachusetts, mortgages, PBS News Hour, Timothy Geithner
Posted in Development, Economics, Financing, Residential | No Comments »
Tuesday, February 9th, 2010
Foreclosure is mutually destructive for all parties and something should be done about it. That’s the opinion of Jafer Hasnain, Managing Principal of Lifeline Assets, the first large-scale institutional investment fund targeted toward acquiring single-family homes that are in financial distress. The firm’s business model aligns the interests of distressed homeowners, banks, investors and American taxpayers. Lifeline Assets is a socially responsible fund that plans to invest more than $1 billion in distressed homes through short sales.
In a recent interview for the Alter NOW Podcasts, Hasnain said that the real problem shaking the economy is on the residential side. At present, the $15 trillion American mortgage market is seeing 1.4 percent of loans in foreclosure, with another nine percent past due. Hasnain, who had a front-row seat when the Resolution Trust Corporation spent $125 billion to relieve financial institutions of their distressed real estate in the 1990s, is providing a private sector solution to the housing crisis that relieves the taxpayers of that burden.
Hasnain has built one of the first institutional-scale single-family residential investment funds in the United States and created a price discovery mechanism that is an objective and sensible way to learn how much to pay for a house whose mortgage is in distress. This way, a family in a home that has gone in default agrees to stay in the house, pay rent and maintain the property until they have the financial ability to re-purchase their home. Lifeline Assets’ offer to purchase each house is contingent on the resident’s willingness to continue living there.
Jafer Hasnain on Foreclosure Crisis:
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Tags: distressed residential real estate, foreclosures, Jafer Hasnain, Lifeline Assets, Resolution Trust Corporation, short sales
Posted in Economics, Financing, Residential | No Comments »
Monday, February 1st, 2010
David Tepper’s shrewd bet that the nation would avoid a second Great Depression inspired him to buy bank shares at rock-bottom rates, a move that has earned his Appaloosa Management hedge fund an estimated $7 billion worth of profit during 2009. Last winter, Tepper invested heavily in Bank of America stocks selling for $3 a share, as well as Citigroup, Inc. preferred stock, then priced at a bargain-basement $1 per share.
Tepper, a philanthropist who funded the Tepper School of Business at Carnegie Mellon University, made a gamble that is paying off in a big way - surprising skeptics who insisted that he was making a costly error. “I felt like I was alone,” Tepper said. There were days when “no one was even bidding.” An improving market has seen Appaloosa Management earn a 120 percent return. As a result of those gains, Tepper now manages approximately $12 billion, making his company one of the world’s largest hedge funds.
In general, hedge funds had a bad year in 2008, when they experienced a 19 percent decline. Approximately 1,500 funds - 16 percent of the total - went out of business in 2008. The funds had a far better year in 2009. According to Hedge Fund Research, Inc., they are seeing a 19 percent return, the best annual gains in 10 years.
Alan Shealy, a long-time Tepper client, says “Investing with David is like flying, with hours of boredom followed by bouts of sheer terror. He’s the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach.”
Tags: Bank of America, Citigroup, David Tepper, Goldman Sachs, Great Depression, hedge fund, recession
Posted in Economics, Financing | No Comments »
Wednesday, January 27th, 2010
President Barack Obama is angry with the big Wall Street banks that took TARP dollars and plans to do something about it. “We want our money back and we’re going to get it,” Obama said in a White House speech when he proposed the Financial Crisis Responsibility Fee. “If these companies are in good enough shape to afford massive bonuses, they surely are in good enough shape to afford to pay back every penny to taxpayers.”
The President’s proposal - which requires Congressional approval - would apply to approximately 50 of the nation’s largest financial institutions and rake in $9 billion a year for at least a decade. Envisioned is an annual 0.15 percent fee on liabilities - except for insured deposits - and would be assessed on banks, insurance companies and financial firms with a minimum of $50 billion in assets. The objective is to counterbalance $117 billion in losses from TARP. The 10 largest financial firms would pay approximately 60 percent of the fee.
“My commitment is to recover every single dime the American people are owned,” according to the President. “And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people, folks who have not been made whole and who continue to face real hardship in this recession.”
Not surprisingly, banks were not pleased with President Obama’s proposal. “Two-thirds of the TARP investment from banks has already been repaid, with a large profit to the taxpayer,” countered Steve Bartlett, president of the industry trade group, the Financial Services Roundtable. “This tax is strictly political.”
Another viewpoint advanced is that banks that haven’t repaid TARP funds haven’t done so because they served the original intent of the program - they made loans to consumers and businesses.
Tags: bonus, budget, department of treasury, Great Recession, President Obama, TARP, taxpayer bailouts, Troubled Assets Relief Program, Wall Street
Posted in Economics, Financing | No Comments »
A long-term steelmaker is not fleeing Chicago for Canada, thanks to a deal in which A. Finkl & Sons Co. purchased six properties adjacent to the Verson Steel site on the southeast side for just $1.