Interview with author Anthony Downs, "Real Estate and the Financial Crisis"

Yesterday I interviewed Dr. Anthony Downs, author of the new book out by the Urban Land Institute called "Real Estate and the Financial Crisis: How Turmoil in the Capital Markets is Restructuring Real Estate Finance."

Downs, who received his PhD in Economics from Stanford University, is a senior fellow at the Brookings Institution as well as a well-known writer and speaker, and has consulted with the nation's largest corporations, developers and government agencies.

This latest title marks Tony's 27th book, which I'll soon be reviewing for the Inman News service, but for now you can listen to the podcast on the widget below (due to a minor technical glitch, my bumper music started playing during the intro, which threw me a bit. But that's show biz!). Downs has also written "Niagara of Capital: How Global Capital Has Transformed Housing and Real Estate Markets," "Still Stuck in Traffic," and "Growth Management and Affordable Housing: Do They Conflict?" Earlier in his career, he also wrote "An Economic Theory of Democracy" and "Inside Bureaucracy."



If you want to buy this book from Amazon.com click on the link below.

Has Obama's "Katrina" moment already arrived?

Apparently things move very fast in the Obama Administration, with some of his more virulent opponents already calling for his impeachment. But New York Times columnist Frank Rich suggests that the lack of communication on the financial crisis has quickly become Obama's own "Hurricane Katrina" moment. From his column:

A CHARMING visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.”...

Six weeks ago I wrote in this space that the country’s surge of populist rage could devour the president’s best-laid plans, including the essential Act II of the bank rescue, if he didn’t get in front of it. The occasion then was the Tom Daschle firestorm. The White House seemed utterly blindsided by the public’s revulsion at the moneyed insiders’ culture illuminated by Daschle’s post-Senate career. Yet last week’s events suggest that the administration learned nothing from that brush with disaster. Otherwise it never would have used Lawrence Summers, the chief economic adviser, as a messenger just as the A.I.G. rage was reaching a full boil last weekend. Summers is so tone-deaf that he makes Geithner seem like Bobby Kennedy...

Click here for entire column.

How AIG became "too big to fail"

With the rising populist anger over growing bail-outs -- especially of international insurer AIG -- Time magazine has a cover story on why the company became "too big to fail." From the article:

The reason AIG has cost taxpayers $170 billion — and the reason the Obama Administration seemed willing, at least at first, to hold its nose and accede to bonuses for the company's managers — is that it's too big to fail. It's an often heard phrase, but what does it really mean?

The idea is that in a global economy so tightly linked that problems in the U.S. real estate market can help bring down Icelandic banks and Asian manufacturers, AIG sits at some of the critical switch points. Its failure, so the fear goes, would set off chains of others, rattling around the globe in short order.

Although some critics say the fear is overblown and the world economy could absorb the blow, no one seems particularly keen on testing that approach....

AIG says it has written more than 81 million life-insurance policies, with a face value of $1.9 trillion. It covers roughly 180,000 small businesses and other corporate entities, which employ approximately 106 million people. That makes AIG America's largest life and health insurer; second largest in property and casualty.

Through its aircraft-leasing subsidiary, AIG owns more than 950 airline jets. Just for good measure, AIG is a huge provider of insurance to U.S. municipalities, pension funds and other public and private bodies through guaranteed investment contracts and other products that protect participants in 401(k) plans...

Keeping the financial system fluid might explain why so many banks got paid in full, which strikes some as a scandal way bigger than the bonus payouts. Many experts wondered why AIG paid 100 cents on the dollar.

Among the biggest beneficiaries of the AIG pass-through, at $12.9 billion, was Goldman Sachs, the investment-banking house that has been the single largest supplier of financial talent to the government. Critics have been quick to note — and not favorably — the almost uncanny influence of former Goldman executives...

Click here for full story.

The real price of printing money for bailouts

I've been reading a lot lately about the impact of these bailouts to the economy, with many pundits predicting future inflation once the current round of deflation eases as inventories of homes, cars and other goods are absorbed and financial deleveraging continues. Eventually, a much higher level of dollars sloshing around the global economy will be chasing fewer goods and places in which to invest. From a New York Times story:

...it may seem perverse that in this new era of reckoning — with consumers finally tapped out, government coffers lean and banks paralyzed by fear — many economists have concluded that the appropriate medicine is a fresh dose of the very course that delivered the disarray: Spend without limit. Print money today, fret about the consequences tomorrow. Otherwise, invite a loss of jobs and business failures that could cripple the nation for years...

But where does all this money come from? And how can a country that got itself in peril by borrowing and spending without limit now borrow and spend its way back to safety?

In the case of the Fed, the money comes from its authority to print dollars from thin air. Since late August, the Fed has expanded its balance sheet from about $900 billion to more than $2.2 trillion, creating $1.3 trillion that did not exist to replace some of the trillions wiped out by falling house prices and vengeful stock markets. The Fed has taken troublesome assets off the hands of banks and simply credited them with having reserves they previously lacked.

In the case of the Treasury, the money comes from the same wellspring that has been financing American debt for decades: Investors in the United States and around the world — not least, the central banks of China, Japan and Saudi Arabia, which have parked national savings in the safety of American government bonds.

Americans have gotten accustomed to treating this well as bottomless, even as anxiety grows that it could one day run dry with potentially devastating consequences...

Since the Great Depression, the conventional prescription for such times is to have the government step in and create demand by cycling its dollars through the economy, generating jobs and business opportunities. That such dollars must be borrowed is hardly ideal, adding to the long-term strains on the nation. But the immediate risks of not spending them could be grave...

The most frequently voiced worry about the bailouts is that the Fed, by sending so much money sloshing through the system, risks generating a bad case of rising prices later on. That puts the onus on the Fed to reverse course and crimp economic activity by lifting interest rates and selling assets back to banks once growth resumes. But finding the appropriate point to act tends to be more art than science. The Fed might move too early and send the economy
back into a tailspin. It might wait too long and let too much money generate inflation...

But that, as most economists see it, is a worry for another day. Some policy makers are focused on staving off the opposite problem — deflation, or falling prices, as demand weakens to the point that goods pile up without buyers, sending prices down and reducing the incentive for businesses to invest. That could shrink demand further and perhaps even deliver the sort of downward spiral that pinned Japan in the weeds of stagnant growth during the 1990s.

Click here for full story.