• Strapped Homeowners Start to Feel the Pain of Rising Rates, Ruth Simon, WSJ Online

• New Signs of Cooling in Housing, Jeremy W. Peters, NYTimes

• Mortgage Market Socialism, Christopher Mayer, The Free Market at www.mises.org

• Neither Fish nor Fowl: An Overview of the Big-Three Government-Sponsored Enterprises in the US Housing Finance Markets, Jay Cochran & Catherine England, November 15, 2001, Mercatus Center, George Mason University [65 page pdf file can be downloaded from the link provided]  

• Plunge Protection', Fiat Money, and the FED, Congressman Ron Paul, www.lewrockwell.com 

• General Motors, Market Engineering, and and 'Confidence' Protection, Eric Englund and Karen De Coster, www.lewrockwell.com

Hey, Ben! Can you 'Plunge Protect' me some tenants?
Ole Bear, Editor's Commentary

I know, I know! All of our readers thought I went on an extended fishing trip to Antarctica for the past several months. Although I would like a nice vacation from this insane real estate market, the truth of the matter is I have been flat on my behind with several herniated discs in the lower lumbar region. I have come to realize that the left sciatic nerve is really linked to my lumbar region and central spinal cord. General Practitioner type Docs in the Box at first prescribe nice narcotics and heavy duty 800mg Ibuprofen that eats your stomach up. After repeated visits they will finally refer the patient to the orthopedic guys with knives and the neuro-radiologists with long needles. Of course this process takes about two months for the GPs to catch on that the general regimen that they are taught in medical school didn't work for some patients who are in excruciating pain, can't drive, or sit down -- because of the intense pain. Two steroid epidural spinal injections [ESIs for you medically minded] and one nerve root spinal injection later [NRSI for the medically inclined], and I can truthfully say life can be better through chemistry and long needles inserted into one's assets. However, they won't let me into the Tour de France, because I would definitely test positive for steroids. What the heck! Being flat on my behind this summer, I have learned all the buttons on two sets of TV remotes and two sets of DVD player remotes, and have seen Memphis Belle about 100 times so far, Phantom of the Opera about 50, and The Passion only once -- once was enough. 


Today we are serving up some interesting fare du jour -- softening real estate, stuff on the GSEs, the Plunge Protection guys in NYC or wherever they hide under rocks, a little stock manipulation perhaps, and probably the most definitive article on the GSEs that I have ever come across. The Cochran & England article on the GSEs is full of footnotes which make for as much interesting reading as the main body of their 61+- page text. It is also a history lesson on the mortgage lending markets. I am only on page 15 so far, and it is slow reading because of the intense nature of the piece and the research. The Chris Mayer article is a quick summary of the Cochran & England article, as it links and references it. 

I just got off the telephone from some loan joker in Iowa wanting me to do a residential comparable search on a property in Marceline, Missouri. The loan joker in Iowa has no idea where Marceline is, albeit about 80 miles northwest of Columbia, MO. This loan joker has no more business making a loan in a market he didn't know anything about than the Man in the Moon. Now, I don't perform comparable searches even in my market for these guys, because I wouldn't get paid for the work to begin with, and you get forced into violating Universal Standards of Professional Appraisal Practice because you get backed into a corner giving a verbal appraisal or value over the telephone. So generally speaking, the residential markets and the MBS portfolios are probably in a big heap of trouble down the road, and even more so when things start hitting large fans -- like derivative meltdowns and things. 

See the pretty commercial office-retail building shown above. Isn't it cute! This building is about 3-4 years old, or so. This picture was taken probably last fall, since the grass isn't green. Guess what? It still looks the same today. It has an empty parking lot, and no tenants. The speculative boom in real estate markets is not just confined to residential and condos in the air. Now granted the above building is shelled on the inside and not finished, one is probably looking at from $1 to $2 million or so sitting there not being productive as this chunk of dirt is probably worth $15/sf. Now we know the owner of the property didn't build this sucker with his own cash in all probability. Do you suppose there is a construction loan on this critter, and that the lender probably had the owner convert to a permanent loan to get this thing off the construction loan books at the friendly bank? I would suppose so. This is what we call OPM, other people's money [i.e., the mortgage lender], and you can bet your bottom dollar there is interest to be paid including the return of the principal. This is what us financial real estate pundits call 'negative cash flow'.... which is a primo example of how not to make a dollar in real estate.

It's great to be back. Warmest regards to all!

Ole Bear, Editor
Columbia, Missouri

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