about Jim Scott

The show is being sponsored by the San Diego Board of Realtors. I am not sure they are going to hear what they would like to hear about this market.

Peter Goodman wrote a piece today in the business section of The New York Times about the city of Portland. The story could be about any affluent city in America;  it is really about our collective economic behavior in these difficult economic times. The article is a cautionary tale how excess thrift and caution can sink a city. Mr. Goodman also provides moral cover for the oft-maligned lending community. I have been a frequent critic of how unreasonable the banks have become. You know the old saw about how banks will be happy to loan you an umbrella if it is not raining. Lenders have gone on the offensive and argue they have plenty of money to loan. They argue that credit-worthy people are not investing, spending or borrowing.

Which brings me back to the umbrella. It does rain, even here in San Diego, and people do need umbrellas when it does. While I can understand their reluctance to take any credit risks in this new environment, assuming risk is in the nature of lending. 

It is at this time that all of us need to assume more risk. Only if there is a collective leap forward can we break the recessionary, and even deflationary, psychology that is the raw fuel of the downturn.  Banks must lend and people must spend . At least more than we have over the past few months. Read the article and then go to the mall.

This month I took a hard look at some of the President’s critics, from both the left and right. Also I have a few comments on the latest bailout plans. Just follow this link.

Try this experiment: watch Fox News and count how many times you hear “socialism” in an hour.  The Fox talking heads are assuming that Mr. Obama is not only a puppet of the ghost Karl Marx but is leading this nation down the road of ruination.

Yesterday’s latest bailout plan, the public-private partnership to buy bad mortgages, is anything but left-wing. In fact, many leftists probably feel a bit betrayed as the miscreants in the melt-down are given their free pass and are in fact invited back to the party.

This makes perfect sense to pragmatists. I am all in favor of allowing the private sector to sort our the mortgage-derivative-collateralized debt obligation-AIG nightmare. After all, they created it and probably can at least value the remains. The bonus in this package is that taxpayers will share in the gain, and I surely believe there will be profit.

Consider that 85% of mortgages are current. This should mean that the toxic assets are really only slightly bad. When the meltdown started last fall the assumption was these assets were worth pennies. I suspect they will end up worth more like 80 cents on the dollar. If the private investors wisely manage the disposition and operation of these mortgages and properties, there will indeed be profit for us and them. 

I watched the Resolution Trust Corporation single-handedly destroy a lot of people’s net worth in the early 90s. By unthinkingly dumping property on the market that drove down further the price of real estate.  And that led to more foreclosures and more bank failures. This will not happen this time around, not with the profit motive.

I found yesterday’s police murders in Oakland disconcerting for more than the obvious reasons.  The families destroyed and the fraying of Oakland’s fragile social compact have absorbed the biggest blows. But for people like me, observing from a safe distance, there are other unsettling parts to this tragedy, other reasons that make it hard for me to shake this story and make me feel feel unsafe.  

As the years have rolled by I have been more aware of what I loosely call the ‘Protector Class’.  Those are people, who by some undefined strength, have the courage to go through the door not knowing what lurks behind.  The Protector Class encompasses many kinds of work but all share one commonality; they voluntarily put themselves in harm’s way on our behalf.

Even the 26-year old loser who took these lives, probably to avoid the inconvenience and discomfort of another trip to the Big House, was a beneficiary of the good works of this class of men and women. I am sure he did not understand this irony and in some self-serving twisted rationale saw them more as predators, not protectors. 

What this miscreant sorely lacked was any form of personal courage. He was bereft of it, either by upbringing or birth. I know little of him and desire no further knowledge. I am sure in my own mind that I know enough. I know all I need to know about him. His acts illustrated his personal cowardice.

So take a moment and quietly recognize what it takes to walk through the door. The collision of courage and cowardice on that Oakland street yesterday afternoon should be remembered by all of us. We should all remember we are lucky to have people willing to step in harm’s way.

OK, let me say right away I am not concerned about the Fed deciding to flood the market with freshly printed dollar bills. I have been writing since late last year that the Fed always had in reserve the financial version of the doomsday weapon, the nuclear bomb of finance, the printing press. I know it sounds like something a third-rate dictator would use when proping up some sorry economy in the Third World. I know all of the past stories of runaway inflation and social distabilization when the presses are cranked up and in many cases the rapid inflation of the supply of money can create social havoc.

But this is America and here we have been trained to accept huge quantities of personal and governmental debt. Whether the money is enlarged by borrowing from foreigners or printing it, we are inured to its’ potential toxicity.  Ronald Reagan grew the debt from 1 trillion in 1981 to 5 trillion by 1989. No one seemed to mind.  After the brief experiment in debt reduction under the Clinton Administration, George Bush moved the debt from 5 trillion up to 10 trillion.

But is this latest printing lark mean more debt? No, some of the trillion dollars is going to buy back government bonds and bills which in turn reduces the national debt. The rest should find its way into Freddie Mac and Fannie Mae bonds which is really a debt shift from the government a new pool of mortgagees.

So it seems like a no-brainer except for all of the anticipated and unanticipated side effects. The uptick in commodity prices and the drop in dollar for starters. But the Fed is determined to force bankers to loan money and buying back debt is the stick they will are going use. As long as banks had a convenient and reliable stash (government securities) for their bailout funds, why loan money and take all of the potential deflation and default risk? Those borrowers are are a pesky and unreliable lot!

Soon banks will have no options other than building a money vault  like Scrooge McDuck. I can just picture the suits rowing around in a sea of coins in their boats. The rest of us will be borrowing from a new Federal Bank that will be created if these guys do not unfreeze credit. Without credit jobs will continue to disappear and the already troubled housing market will follow.

I will on KOGO’s (600 AM) weekly showing on real estate on March 29th. I am appearing with the San Diego Board of Realtor’s President and the topic is Mission Hills Real Estate. I have appeared three times in the past on talk radio, but I am not sure of which station it was. I was on the Bill Ballance show in the evenings and Jeff Quinn and I appeared together.  Mary Quinn, Jeff’s spouse, was a regular on the show as she is a psychologist.

Of course, and anyone who appeared with Bill will tell you this, the show was about Bill. He was a great radio showman who somehow always found a way to bring the conversation back to him. It was fun to watch and be a part of a show that is really an important part of modern radio history.

People who have made bundles in real development have one thing in common; they tend to think and act in the long term. Take the acquisition of land for example. Even though the environment for building and selling new homes is difficult today, the major merchant builders and land developers are now looking to acquire land.

There is quite a lead time from land contract through finishing up that model home and builders know this. Monitoring new permits and housing starts, as well and watching the Dow, is a good indicator of what smart and established players are thinking about the future market. They are not emotional about this, unlike the population of nervous buyers currently afflicting the business. These people know they need to have finished product on line in three to four years. That belief alone gives the rest of us information about how these people see their world.

Remember the advice of Sam Zell, “Look to replacement costs” or something like that. I have always been a believer in that dictum. When looking to price correctly an existing property, of any type, ask yourself what would it cost to replace it? That should be your guide to a good market price. It is all about replacement cost, no more and no less.

We have last month a positive sign in higher housing starts and permits. If it continues, it should signal a shift in the current market cycle.

OK, I can understand all of the outrage over the multi-million dollar bonuses about to be paid to the geniuses over at A.I.G., the giant insurer who profited mightly during the boom.  When I read the article yesterday about the small army of failed executives who managed to destroy one of the world’s fianancial giants, I too was as outraged as much as Barney Frank who is taking on the bonus issue.

I would like the bonuses rolled back or at least have them re-negotiated. It is nothing more than giving a highly paid major league outfielder a huge bonus at the end of the season for hitting below the Mendoza Line.  The problem is this, AIG is truly too big to fail and that is because their customers are banks and institutions, like Bank of American and the State of California. 

Here is the money trail: The guy in Stockton walks away from his house and defaults on his mortgage he got from the Bank Of America, who is a vital player in our sluggish credit markets  The Bank loses 40% of the value of the mortgage. Fortunately, the Bank insured the mortgage, as part of a larger pool of mortgages, through AIG and now wants to get paid.

As B of A goes so goes real estate prices. The circle is complete. As distastefull as this all is, we have little choice but to hold our noses and move forward. In the end, we will all be better off.

Yesterday I was reading a paid-for-article in the Sunday real estate section and I was struck by the blatant and I believe unjustified sense of optimism about the real estate market.  This goes to the point of the Jim Cramer-Jon Stewart joust where the lack of trust in all people reporting on all sorts of markets has become evident.

It is very difficult to get honest information if it involves facing some unpleasantness in our lives. We all know the housing market is in the tank and there is little way to truthfully spin reality into something palatable. Of course, that does not stop the onslaught of information, both in print, on the internet and on television, that is at best self-serving and at worst a serious distortion of reality.

Personally, I prefer to operate in what most of us accept as reality.  I am more than willing to speak to the truth of our current circumstance. I know there are hopeful signs, hey, look at the market last week! But I also see the carnage close up. 

I guess this touches a sore spot with me in that I heard a similar spin in the early years of the Vietnam War. I learned in just two weeks, as a green Second Lieutenant,  that I was part of a bootless errand and in no form or manner could we ever prevail. I endured but always with the nagging feeling that I was a participant in a colossal error fueled by mis-information.  I peered into the tunnel and found no light, only loss.

We owe to each other, as citizens and neighbors, to speak truth and face our times with courage. Courage, or a lack thereof, is one the most defining characteristics of us as individuals and as members of our tribe.