The Real Estate Spot

New Website

2012-01-25T18:49:00.002-07:00

Woo-hoo, new website up and running. Click here, or use the link above my profile to the right.

Big Boys of BK

2012-01-19T12:41:00.000-07:00

Lots of Chapter 11 news today.

Kodak finally filed last night. It had been in trouble for a long time (I think I'm one of the few fossils remaining who uses film.), but it was trying to reshape itself as a printer company. To do so, it was relying on a revenue stream from its patent portfolio (At one time that portfolio rivaled the likes of Bell Labs and IBM.). Unfortunately, Kodak didn't account for aggressive (i.e. predatory) behavior by some major license users, including Apple and Research in Motion (I have to say I don't use much of anything from Apple. I hate black boxes, so I didn't care much for the products, and I didn't care for the culture, either. Seemed too much like a religious cult. I see people walking around festooned with 500 i-Crap products, and I wonder why anyone needs to be so simultaneously plugged-in and cocooned from the world. They remind me of Neo in The Matrix before he's released from his pod. RIM, though, hurts. I've rocked the Crackberry for over a half-dozen years now.). The big users decided to stop paying for the licenses, forcing Kodak to litigate. They wouldn't buy the patents outright, either, at least not for more than a dime on the dollar. So Kodak is in Chapter 11, where it might be able to force a few things.

American Airlines, on the other hand, might be getting forced. It's nearly two months since it filed, and American has barely gotten off square one. As I blogged the day it filed, American's big motivation was to take down the labor contracts and pensions. It hasn't, and everyone (including Your Truly) is confused about the delay. Confused about it, but still willing to take advantage of it. Delta and US Airways are making noises about rival bids, and others are getting into the game. If American doesn't have a reorganization plan in front of creditors in two months, it's looking at getting parted out.

And of course we can't let the day go by without some more mess from MF Global, this time with a heapin' helpin' of JPMorgan Chase. It seems that back in October, right before it filed, MF Global was selling piles of assets to raise cash. Problem was, it was selling them through JPMorgan, which decided to do a by-the-book slowdown of the transactions. Consequently, MF Global had neither the assets nor the cash and couldn't meet the inevitable margin calls. Welcome to bankruptcy. Now the creditors and trustee are finally getting around to asking JPMorgan where the money went, because it certainly hasn't been turned over.

JPMorgan's involvement in "where did it go" scenarios is getting to be a habit, and it's long past time someone pulled the curtain back and took a look. Somebody needs to look at where Washington Mutual's assets went, because they were there until JPMorgan stepped in. And unless something drastic has happened this week, JPMorgan is still sitting on piles of cash involved in investment schemes from five and six years ago (I have to be careful here. I've had two, executive-VP-level in-house counsel lie to me about the creation and handling of those accounts, so it's hard to say what the "official" records look like any more. And I've had outside counsel threaten me with bar discipline for daring to represent anyone opposing JPMorgan. But then that's SOP for Utah. The Bar doesn't care if an attorney makes a groundless threat like that so long as he is representing a 1% client and he makes it against an attorney with a 99% client.). Any wonder I refer to the place as "JPMorgoth"? We'll see if anybody decides to use the big microscope this time or if JPMorgan skates again.

If You Don't Promote, Your Business Won't Float

2012-01-15T11:47:00.001-07:00

No apologies at all to Johnnie Cochran.

Yesterday, while waiting for a kid to finish a rehearsal, I swung by Trolley Square just to see what was going on there these days. It was about 0915, and I was surprised to find the parking lots and new garage already pretty full. I walked inside and discovered that Trolley had leased a space to the Sundance Film Festival for ticket sales and that there were several hundred people in line waiting for the ticket office to open at 1000. I thought, "This is a great idea by Trolley. Sundance audience, relatively hip, some discretionary income. Exactly the target market for Trolley-style shops. And a captive audience to boot, with nothing to do but stand around until the ticket office opens."

And then I noticed that I wasn't seeing any shops open. I walked through the whole place. Not a single shop was open. No one was working the lines, handing out fliers or coupons or samples, offering to hold a place in line while someone shopped, taking food orders and bringing them back. Nothing. All those customers, and no one approaching them.

First, to Trolley Square management: Kudos, you did your job. You brought in a mass of potential customers the likes of which has rarely been seen around that tomb. And you'll be bringing those crowds in all week. It isn't your fault if your tenants aren't taking advantage. When they come whining to you for concessions because they aren't getting enough traffic, you should rub their noses in the photos and videos you're taking of this event. Why should you give concessions to businesses that act like they're hobbies?

Second, to Trolley Square tenants: You blew it, and you'll probably blow it all week. Yes, you opened at 1000, but so what? Those customers had already been there for an hour with nothing to do but wait. They didn't even have a moving line to keep up with. They were just standing there. And you were nowhere. You weren't visiting with potential customers, you weren't telling them about your inventory and specials, you weren't learning about their shopping habits and needs, you weren't getting their contacts for your email list, you weren't having them like your Facebook page. You were a no-show. I know you'll whine about lack of traffic all Summer, but it's really your own fault.

Third, to everybody: I've seen grundles of small businesses that acted either like they were hobbies or they had a divine right to customers. Both attitudes are fast tracks for the Fail Train. Hobbies are not designed to make money; they need to stay in your garage. And the last folks who claimed a divine right to something got their heads lopped off. The only people who don't have to work for money are the ones who were born with it. Your business is there to make money, and that requires work, your work. If you don't bring it, don't expect success.

Merry Red Ink Christmas

2012-01-10T11:34:00.000-07:00

Throughout the holidays, I saw people buying like mad. I kept thinking, "Wait a minute. The job picture stinks, about every asset and investment class is dropping, and everyone below the top 10% is getting absolutely rocked. How is everyone buying?"

The old-fashioned way, apparently: debt. The Fed's figures for November are out (December won't be out for another month, but I can't imagine it won't look worse.). Consumer debt rose at an annual rate of 9.9%. Revolving debt (credit cards, lines of credit, etc.) rose at an annual rate of 8.5%, and nonrevolving debt (mostly secured purchase money loans and student loans) rose at 10.7%.
This is a mess in the making. We have learned nothing from four years ago. People are once again buying by spending money they don't have by taking out loans they can't afford from people who don't care if they (or, more accurately, their clients/customers) get repaid or get stuck with collateral they can't unload so long as they get their origination fees. And when this new house of cards collapses, where does the bail-out come from this time?

I see bankruptcies trending back up soon, but that isn't the real concern. With the President, the House, and one-third of the Senate up for election this Fall, D.C. will pull any smoke-and-mirrors to kick the economic can past November. But what kind of hangover will we get in 2013? If what we've seen is any kind of prologue, you may want to find yourself a place to hide in the high grass.

Money Tree Not Down

2011-12-30T14:02:00.002-07:00

For any of you who may be wondering, the recent announcement of a Chapter 11 filing by Money Tree has nothing to do with the local company. Completely separate entities. The bankrupt one operates solely in the Southeast (Aside: How do you go broke as a payday lender? Katrina was six years ago, and did it really blow that many paychecks out to see? Were you lending to the entire Ninth Ward?). So if you need a loan shark out here in the wild, wild West, the local Tree is still standing.

It Wasn't Illegal?

2011-12-28T19:30:00.001-07:00

On 11 December, President Obama was interviewed on 60 Minutes. The transcript is here. The interview is pretty much what you'd expect. Then, about three-fourths of the way through, comes this:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.

Excuse me?

First, it must be nice to deal with US news media, which consist almost entirely of ignorant tyros who do what they're told. Steve Kroft swallowed that comment and just kept pitching softballs. A BBC interviewer would have gone straight at that comment and pointedly asked the President just what in Hell he was talking about.

Second, loan fraud is illegal, and we've had well over 31 flavors of it in this mess, with new ones cooked up by B of A, Chase, and RBS every day. Securities fraud is illegal, including stuffing investment instruments with cherry-picked, bogus "assets" and then betting against them (I'm looking at you, GoldSacks.).

Mr. President, as a former prosecutor I can tell you that, just because your boys aren't pressing charges, all this garbage has suddenly been washed clean. And yes, Mr. President, the DOJ folks are your boys, however much you may want to hide behind prosecutorial independence. You picked Holder, you picked the US Attorneys. Their decisions are your decisions. Own them.

Just Because You Bought It...

2011-12-28T18:54:00.000-07:00

...doesn't mean it's yours. There's a big brouhaha in the MF Global bankruptcy. It seems the trustee's definition of the bankruptcy estate (and hence the assets available for him to liquidate) includes gold and silver bullion that traders and investors parked, or at least thought they were parking, with the firm and received warehouse receipts for. And they are WAY unamused they can't get their bling.

A little background. First, warehouse receipts. I'm Joe Farmer, and I just brought in my corn harvest. I decide to store it at the grain elevator for a couple of weeks. I take it to the elevator, physically deposit it there, and get a receipt for X amount of corn. When I want it back, I turn in the receipt, pay the handling charges, and get my corn back. Substitute any storable thing you care to name, it's the same, basic process.

Second, other people's property in a bankruptcy estate. If you lend your friend $100, and he declares bankruptcy, chances are you'll never see old Ben Franklin again. If you let your friend use your car, though, and he declares bankruptcy, the trustee can't just take your car. The bankruptcy estate doesn't include things the debtor possesses but someone else owns.

And that's what the warehouse receipt people are saying. They have receipts for specific bars of precious metals that they bought and that were supposed to be stored in the MF Global facility.

Problem the First: Unlike Joe Farmer, extremely few of these people actually lugged any gold bricks to MF Global for storage. Some put money directly into an MF Global account for purchase and storage, and took a "warehouse receipt" in return. Others were brokers themselves and were making purchases for customers. Either way, they weren't really following warehousing procedures (How often do you ask the warehouse to buy the stored item for you?), so off the bat we have a question of whether these "warehouse receipts" are warehouse receipts.

Problem the Second (and here's where it gets painfully apparent that a brokerage is not a warehouse): Back in 2005 the CFTC adopted Rule 1.25, which allows certain commodities investors to invest clients' deposit accounts (as opposed to investment accounts) so long as an asset of "equal value" is substituted in (As an aside, if I as an attorney were to do this with a client account, I'd be doing the perp walk in nothing flat. In Investment World, though, it's perfectly OK. For the investment house, that is.). This fact was undoubtedly disclosed somewhere in the "storage agreement," and unless I miss my bet, that condition wasn't entirely one-sided. If MF Global could invest the deposits, it could defray some of its costs instead of passing them on to the depositors (Remember those handling charges I mentioned? Running a grain elevator isn't free.). I certainly wouldn't be surprised if that was how MF Global pitched it.

So instead of the gold and silver sitting in the warehouse, MF Global pulled it and replaced it with "assets," namely paper instruments with all the value of papier de la toilette, or some such. Needless to say, a bunch of the gold and silver is nowhere to be found. Which means a bunch of those "warehouse receipts" don't stand for anything. Which is perfectly OK since, by the receipts' own terms, the bullion could be swapped out. Which leaves the "warehouse receipts" looking less like warehouse receipts and more like mislabeled investment contracts. Which is exactly how the bankruptcy trustee is treating them. If the depositors want it any different, they'll have to take the trustee to court and force it. Good luck with that.

Some Recovery

2011-12-15T11:31:00.002-07:00

Things have slowed down in bankruptcy world, and now I have an idea why: People are too broke to care. The latest census report shows that nearly half the population is either "in poverty" or "low income". In other words, half the country either can't afford to file or has so little worth that filing is pointless. When exactly was it the recession ended?

Of course the Heritage Foundation (The only "heritage" that foundation has is shilling for the 1%. Just saying.) trots out its "poverty expert" Robert Rector (Oh, it's such a strain not to do naughty puns on his name.) to say that they're not really poor (by Mumbai standards), that we do enough for them already (Look at all the taxes rich people have to pay.), and that we just need to teach them how to be "self-sufficient." Of course, this toady has been shoveling this line for decades. Don't believe me? Google him. Or look at this article from 11 years ago where he's claiming the gap between rich and poor isn't so bad because of all the poverty programs the rich have to pay for (First, note how he conflates "income gap", which is bad enough, with "wealth gap", which is more accurate and is absolutely obscene. Second, note that the gap has only gotten worse, due in large part to policies the Heritage Foundation promotes. Don't believe me? I'll let those Commies over at Forbes lay it out for you. And while I'm over at Forbes, took a look at this article on 1% wheels. Don't you love that remark by the Bugatti CEO, "The crisis cannot keep a Bugatti buyer away from buying a car for financial reasons”?). Or this article, in which he claims the poor don't need more food because so many are already overweight (conflating "underfed" and "undernourished"). Or how about his remarks to the New York Times saying all but a very few people are merely "constrained" in the type of food they buy, so there is no hunger problem. Just to show you you what level of dinkage this guy operates on, he's also the Heritage Foundation's "expert" on abstinence-only sex "education". News flash: That's the kind of sex education we had when I was a kid and on before that, and ignorance really wasn't a terribly effective contraceptive. The difference is that, back then, a 17-year-old could get a job that could support the girl and baby. Those jobs are gone, and the Heritage Foundation led the charge to destroy them.

OK, rant over. The bottom line is that things are not improving. If unemployment figures are going down, it's because people have dropped out of the work force or are holding jobs that barely qualify as jobs. People are hungry and cold and desperate, regardless what the paid shills say. And it's getting worse, not better.

Red Ink by the Barrel

2011-12-13T17:52:00.000-07:00

Lee Enterprises has filed a pre-pack Chapter 11, basically to force some dissenting creditors to go along with restructuring the company's massive debt load. For months now this hasn't been a matter of "whether" but "when". Lee, frankly, is a mess, and while it is pretending to be singing "Kum-Ba-Ya" with its largest creditors now, this looks like nothing more than a game of kick the can.

Full disclosure: I used to be in newspapers, and Lee publishes a lot of them. Locally, it publishes the Provo Herald. Back in my old, home territories, it publishes the Quad City Times and the Muscatine Journal (in Iowa) and the Lincoln Journal-Star (in Nebraska). I worked for the Des Moines Register, and the Times was our chief rival in Eastern Iowa. On the other hand, when I was in high school, the Star ran a feature article on me, complete with a picture of my not-so-smiling face, on the front page. I guess that makes me neutral.

In all seriousness, you have to wonder who is driving the bus at Lee. You can trace this train wreck to 2005, when the company acquired Pulitzer, Inc. (owner of the St. Louis Post-Dispatch) for a cool $1.5 billion. Newspapers folding left and right and the industry in a general state of free-fall, and Lee decides to drop a bill and a half on acquisition. Of course it was 2005, credit was cheap and loose, and the economy could only go up, just ask The Blessed St. Greenspan. You can imagine the dollar signs in Goldman Sachs's eyes when it heard Lee was looking for financing. You can imagine the pitchers glossing over the 1.5 billion things wrong with the deal, including the complete lack of supporting cash flow and acquisition value and the requirement for unanimous creditor approval for refinancing (which is what forced the Chapter 11). Anybody who greenlighted this checked both brain and spine at the boardroom door.

Now GoldSacks and its cronies are getting a 13% piece of the action, and you can bet they won't put up with any management shenanigans. And I expect the shenanigan attempts to commence soon. Lee's plan defers the due dates on all those bonds, but the bonds are still there, ticking away, and its revenue stream is so poor it must have been handing out Swisher Sweets to celebrate the deal. Lee certainly couldn't cover Montecristo A's. On top of that, a big chunk of the debt isn't really deferred. It's currently at 10.55% (Can Mary Junck say "Junk"?), and in a year the escalator clause kicks in. There is no way Lee can cover that. I figure that in perhaps two years, the creditors will pull the plug, part Lee out, and hold fire sales for the papers that are still standing. And there will go a big chunk of what's left of this country's news media straight down the drain.

Chapter 11 Airlines

2011-11-29T10:44:00.000-07:00

Well, it was just a matter of time. Every other major, U.S. airline had taken a trip through bankruptcy court in the last 10 years, and now American Airlines, via its parent AMR Corp., has gone in. AMR cites two, big causes: fuel costs and labor costs. Ignore the former; it's all about the latter. AMR will use 1113 to reject the current collective bargaining agreements, 1114 to severely curtail retirement benefits, and 29 USC 1341 to do a distress termination of the pension plans and foist them on the Pension Benefit Guaranty Corporation (i.e. we taxpayers). No word about a pre-pack plan, but you can bet there has been a bunch of negotiating going on. Watch the first-day motions to see who is pulling the levers. You can be sure it isn't the unions, who haven't even been invited to a side table.

It's easy to feel sorry for retirees losing pensions, but these tended to be real Rolls Royce models, while the rest of us muddle along with Yugos (Actually, mine is more of a skateboard.), so it isn't hard to see how companies can't keep funding them. There are two things that gripe me, though. First, it's apparently OK for a multinational corporation to walk away from obligations like these, but morally reprehensible for poor schlubs to bail on economically absurd mortgages. Sorry, that's hypocritical horse hockey. Second, AMR entered into these contracts with its eyes wide open and led by the managerial geniuses who will be running the reorganization and who are unlikely to take any kind of meaningful haircut for putting the airline in this position. If you want to talk about rewarding failure, start right there.

Agribusiness Is The Problem, Not The Solution

2011-11-27T16:22:00.002-07:00

Winterbotham Parham Teeple, one of SoCal's main BK houses, recently noted on its blog that rising grocery bills are playing havoc with family budgets. I commented that the real culprit is the decades-long romance of government and the banks with industrial agriculture at the expense of small farms. Winterbotham is trying to soft-pedal the price increases as business as usual. I'm having none of it, and you can call me a conspiracy nut-case all you want, but U.S. ag policy for over 60 years has had the uniform effect of continuously shrinking the percentage of the population that can feed itself. What does that mean? Control. As Mark Twain put it, "Show me where a man gets his corn pone, and I'll show you where he gets his opinions."

Anyway, I posted my comment a week ago, and it has yet to be let out of moderation, even though I know more about ag commodities and policies than everyone at Winterbotham combined (Not a brag. Fact.). So here it is:

"Yes, we would all like to maximize profits, but Agribusiness has had singular forms of assistance. Since WWII it has had a federal agricultural policy designed to drive people off the land, and since 1970 it has had a matching financial industry policy. We now have 90% of the population divorced from the land and wholly dependent on industrial food delivery (We have also become a net food importer, perhaps the greatest absurdity produced by our economic system.). When people tried to become less dependent, Agribusiness acquired new allies. A pliant USPTO granted patents on every strain of seed presented to it, allowing Agribusiness to send cease and desist letters to anyone with the temerity to save seeds for planting. And all producers have to comply with all regulations (regulations that Agribusiness loves to wail about but that it in fact uses to drive small “competitors” out of business), and if they don’t, the USDA, FDA, and state agricultural agencies will sweep in, destroy their operations, and even jail them, as if they were cooking meth.

In other words, Agribusiness has used government and bank assistance to create a captive market and continues to do so. So yes, there is plenty of reason to object to unrestricted price increases."

The Latest On Harrisburg

2011-11-23T14:28:00.000-07:00

Bankruptcy Judge Mary France has dismissed Harrisburg's Chapter 9 petition, ruling the city did not have the authority to file under state law. See this post for my initial comments on the filing last month. Mayor Linda Thompson and a minority of the city council have fought the filing all along. I have not seen the ruling, but apparently it was based on two grounds: 1) Act 26 that the Pennsylvania legislature passed this year bars Harrisburg from filing, and 2) the authorizing resolution was invalid because it was not presented to the city solicitor first.

We'll see how this plays out. First, I question whether Act 26 is actually constitutional, regardless of Judge France's ruling that it is. Given that it targets Harrisburg alone among all the municipalities in Pennsylvania, it has to be vulnerable to an equal protection challenge. Second, if the council can get around Act 26 and wants to refile, it can streamroll the city solicitor. The law only requires that the resolution be presented to the city solicitor, not that he approve it. "Here's this resolution we're going to pass. Don't like it? Pound sand!" Believe me, I've been to that rodeo more than once.

If the decision stands, the mayor and the council minority are going to learn you should be careful what you wish for. Once a receiver takes over, their authority is going to be reduced to the name plaques on their doors. And maybe not even that.

No Giving Thanks In Orem

2011-11-21T23:24:00.000-07:00

Nordstrom's has pulled the plug at the University Mall in Orem. Come 24 February, the mall will be missing two out of three anchor tenants (Mervyn's spun in several years ago, and Nordstrom's closure will leave only Macy's, in the old ZCMI space it got in the buy-out.) as Nordstrom's heads north to open its new store in City Creek. Orem will seriously be hating that loss of sales tax revenue, and Woodbury (the mall owner) has to be ruing the improvement money it fronted to get Nordstrom to move into that space 10 years ago. It's only half-way through the 20 years of earmarked sales taxes it was promised as reimbursement, and that payment stream just went POOF.

So why is Nordie's doing this? Because it knows where the money is. Nordstrom's has always been well above median in the market, it wants to go farther up the scale, and it doesn't think enough of the good citizens of Utah County have sufficient discretionary income to make it fly. In other words, Nordstrom's has called the yeast-growth-curve-knee in the MLM Ponzi scheme that is the Utah County economy. Utah County is saturated. There isn't enough upline/downline/sideline left for the next magic hoochie juice to cover family expenses and still leave some extra for Waterford crystal or clothes imported from anywhere other than China.

But we're so business friendly here and have such a well educated population. News flash: That's the problem. Because of what Utah is, gazillions of highly trained people flock here for jobs that don't exist. You can't swing a cat without hitting a dozen people with graduate degrees pounding the streets peddling security systems door to door because there isn't anything else to do. Add to that a rabidly pro-business legal and social environment, and you're not just in a race to the bottom of the wage barrel, you're picking up the barrel and digging a hole under it. You end up with no one being able to shop at Nordstrom's, except for the top 1%, and let's face it, there are only so many stores 25,000 people can keep open.

Of course the Chamber of Commerce is putting a big smiley-face on this, assuring everyone that Woodbury will have a new anchor in there in no time. I don't know what Kool-Aid they're drinking, and I'm not sure I want to know. What anchor retailers are looking for space like this? The Mervyn's space has been dark for three years now. Who is going to look at the demographics and decide that moving into this space is a good play? The Dollar Store?

Another Muni BK

2011-11-10T11:24:00.000-07:00

So we have another municipal bankruptcy filing, this one in Alabama. And it's a biggun, with over $5 billion in debt, sure to send some shockwaves through the bond markets (The centerpiece of this solid waste is a series of sewer bonds.). The one bright spot is that this isn't the result of anything systemic but rather of outright corruption, and that people have actually gone to prison for it (Gee, how did that ever happen?).

What I can't believe in all this is the remark by the receiver, John Young Jr., that the filing is an "utterly irresponsible act". Excuse me, but allowing the public purse to continue to be eaten away by creditors who were ratcheting up the terms of the settlement would have been utterly irresponsible. Your job, though, was to keep the creditors in line, and you failed, so if we're talking about "irresponsible"....

The remark I can believe is the one by the JPMorgoth Chase spokescritter, just not in the way she intended. I bet JPMC wanted to avoid a BK filing; in Chapter 9 its backroom maneuvering and political clout are severely curtailed (Duplicity by JPMC? I'm shocked, shocked! Just because I've had two VP-level JPMC counsel lie to my face in multi-million dollar cases....). Sorry, people, you overplayed your hand and left Jefferson County with no choice.

Ice Cream Cools Off

2011-11-04T18:32:00.000-06:00

Dippin' Dots, which makes the ice cream equivalent of little chocolate doughnuts (You just keep popping them in until you 'splode.) has filed Chapter 11. According to its filing, it has a decent shot at reorganizing, but we'll see if the filing is reality. The bigger question is, if ice cream companies are going down (And they are. Goodbye Snelgroves!), just what sort of civilization are we creating here?

BTW, it's absurd that the spell checker here thinks "doughnut" is misspelled. But then again, it thinks "blog" is misspelled.

The Way We Live Now

2011-11-03T16:41:00.000-06:00

I love this book. It should be required reading.

Do you think federal jobs are a safe bet? You might want to check with the 9,000 civilian employees the Air Force is showing the door.

Maybe high tech? Guess again. AMD, the second-largest microprocessor manufacturer, is shedding 1,400, 12% of its workforce, and its stock is still falling.

George Papandreou made a brilliant move at the G20, threatening to hold a referendum on the Greek bail-out, which would undoubtedly scuttle the proposal (Mish and I actually agree on this, so take special note.). Papandreou is already back-stroking on this, but the opposition parties may hold him to it.

In spite of 30-year mortgages falling to 4.1%, housing prices continue to sag because no one is buying because no one can. How can you buy if your job prospects consist of being a part-time greeter at Walmart? Yet Bloomberg has the temerity to blame the malaise on new regulations.

But then what do you expect from Hizzoner Michael? He just blamed the mortgage mess entirely on Congress. Have to protect Wall Street at all costs, eh Mike? Even Forbes called BS on this.

So what do people consider to be the big answer to this mess? Gold. Yes you read that right. The big, yellow clunker. I love Paul La Monica's comment about gold having "tangible value". Really, Paul? How many fillings and ear studs do you need? Trust me, children, as I've commented before, if you wake up one day wondering where you're going and what you're doing in that handbasket, you won't need gold, you'll need dirt and lead, i.e. a place to grow your spuds and a loaded weapon to defend them. Smokes and booze are far more useful for barter than gold can hope to be.

And on top of that, a growing bloc of idiots thinks returning to the gold standard is the way to go. Yeah, that makes sense. Everybody is in hock to his highest hair follicles, and the threat of severe deflation grows daily, and we're going to fix it all by hardening the currency. Reality to geniuses: We tried exactly that in the 1870s and got a quarter-century of rolling recessions. For most people it was a depression. Except for the top 1%, who made out like bandits (Ever hear of The Gilded Age?). Now stop and think about who is really pushing for a gold standard now. Sheesh, I knew you people were born at night, but I didn't know it was last night.

Ye Olde Spelinge Bea

2011-11-03T13:46:00.000-06:00

I'm a good speller (You wouldn't know it from some of my entries, but that's because I'm not a good typist.). It runs in the family. My dad is a good speller. My son is a good speller. Dad and I both rocked in spelling bees when we were in school. Today was the boy's first spelling bee, and I was reminded why, even though I'm good at them, I loathe spelling bees.

When I was in seventh grade, I won the school contest and went on to the county. Then things got serious, and we received a little blue book of words to study. I remember looking through the lists and thinking, "Who last used these words, Chaucer?" I think I've actually found some of them in my Anglo-Saxon copy of Beowulf. Seriously, though, I think spelling bee organizers pull a solid 25% of their words from diaries of their great-great-great grandmothers who spent their lives in rural, isolated places. Well, I got tripped up by one of those "words that are no longer with us" (and that wasn't in the blue book either, hah!). Now, I have always loved reading Shakespeare and such and learning the words in the old literature, but you have to draw a line. Dad and I actually got into an argument about that line in the parking lot after the spelling bee. He threw an "if you'd just study more" routine at me, and I responded, "Who gives a damn about memorizing words that haven't been used since before Noah Webster was born?" He didn't appreciate that.

The rock the boy wrecked on was that commonly used word "chickabiddy". Look it up (I sure had to.) and ask yourself what dismal corner of 19th Century Mississippi they dragged it from. There isn't enough time to learn everything there is to learn in school, and that problem gets worse every year. Learning to spell words that fell into disuse so long ago they probably never had a standard spelling isn't learning, it's busy work.

The State of Chapter 13

2011-11-03T13:12:00.000-06:00

Earlier this week I posted an update over at my LinkedIn page about managing to shove two Chapter 13 plans through confirmation over the trustee's objections and without breaking the clients' nonexistent bank accounts. That page is for business PR, so I keep it civil. Not so much here.

First, you have to understand what bankruptcy "reform" in 2005 did (Look here for my unvarnished opinion on what BAPCPA was really about.). BAPCPA shifted the presumptive chapter for consumers from 7 to 13, from liquidation to a 3-5-year repayment plan (bka release-time debtors' prison). That means that, if you are an ordinary schmoo, and you can't jump through a bunch of special and frequently shifting hoops, you have to go for Chapter 13. Which means the Chapter 13 trustee effectively dictates who gets bankruptcy protection and who doesn't.

Second, understand that, according to my sources, Chapter 13 problems are not limited to Utah. Chapter 13 trustees all over the country are slamming the door in people's faces for no good reason other than they can (Example: Why do the trustees push, and why do the courts order, the inclusion of Social Security in projected income? Just because there's a line for it on Schedule I, in spite of the express definition of "disposable income" in 1325(b)(2)? And in spite of creditors not being able to reach Social Security if the debtor were liquidated? You decide to make it unfeasible for a substantial population of elderly and disabled citizens to obtain bankruptcy protection? Aside from being, IMNSHO, an error of law, there is a term for this: jerkitude.). Why on Earth are Chapter 13 trustees more intent on wrecking debtors than Chapter 7 trustees are?

But there are peculiarities to Utah. First, the trustee routinely throws three sets of objections at a debtor: one for the 341 meeting, one after that, and another just before the confirmation hearing. How many bites at the apple does it take? Second, has anyone in that office run a business? A frightening percentage of the "objections" to business financials are just tragic. Third, why is everything a last-minute sandbagging? I know you're busy, but so am I, and I don't like wasting my time at a hearing where you're raising new issues or resurrecting issues I thought we had resolved. Or raising things that aren't before the court, just to stir the pot (Example: In a recent confirmation hearing that ended up being continued, the trustee noted to the court that I had objected to several claims. True, I had, because those creditors had not bothered to document their claims, and I was entitled to object [The rules say so.], but the trustee insinuated I was being sneaky and obstructionist. The court then proceeded to unload on me and accuse me of a bad faith filing. Well, the creditors amended their claims, and I filed a withdrawal of my objection, but to cover myself, I laid out the legal basis for the objection. I wanted to make it clear to the court that there has been a change of law and to the trustee that I was not amused, but mostly (no, really) I wanted to fire a warning shot over the bows of any creditors who were thinking of taking me to task. But in the end, not one step of that trip was necessary.).

Finally (No, not really. See below.), why does the Chapter 13 trustee mess with exemptions? Utah is an opt-out state, so we use only the state exemptions, not the federal. Some of those exemptions are based on the item, not the value. For example, your refrigerator is exempt, regardless of how much it's worth. Nevertheless, the Chapter 13 trustee insists that each exemption have a specific value. Have you ever tried to value used carpet? On top of that, if the trustee doesn't fancy your value, you're facing an objection that will have to be resolved at the confirmation hearing. Why does this matter? Because the US Supreme Court recently ruled that a debtor can lose part of an exemption by claiming less than the full value of the exempt item. I'm not interested in setting a $10,000 value on the household appliances only to have their value ultimately pegged at $15,000 and having the trustee demand an additional $5,000 be paid into the plan. I have a work-around I've devised, but I'm waiting for the trustee to object to it. Because then the fight will start.

But the thing that really bugs me is something that has bugged me about the bankruptcy court since I first walked through its doors over a quarter-century ago: It's a sealed society. We have an extensive code and extensive general and local rules. We have standardized forms, best-practices manuals, and regular training sessions. But it's all for show. In reality the bankruptcy court is a Star Chamber that functions via secret handshakes and Captain Midnight decoder rings. Case in point: I've been trying to figure out a number of the requirements the Chapter 13 trustee imposes on plans. Not in the code, not in the rules, not in the handouts. Finally stumbled across a blog the trustee established over three years ago (and hasn't updated in over three years) laying out the office's interpretation of the new model plan. Not the authorities, just the conclusions. But there it was, all laid out (No, I'm not going to give you the URL. A guy has to have some trade secrets.), everything they've decided to require in a Chapter 13 plan. All I can say is "Wow, just wow." A model of transparency.

Which is a long-winded rant of a way of saying, forget what you read on the self-help sites on the Internet. If you're planning on filing bankruptcy, especially Chapter 13, seek help from somebody who does it for a living. Because what it says in black and white isn't the way things work in the real world.

Only So Long I Can Hold My Tongue

2011-10-19T12:02:00.000-06:00

Adam Levitin posted a great piece on Credit Slips ripping on proposed "solutions" for the financial crisis (And yes, kiddies, regardless of the pablum they're shoveling your way, we're still in a crisis.). Basically, he compares these proposals to prescribing an aspirin to someone with a knife in his chest and then giving the aspirin to the attacker. First comment out of the box blames the mess on those evil, nasty borrowers. To quote the Interweb meme, "Don't know if trolling or just stupid." Probably a shill, actually. Anyway, I and a few others declared a free-fire zone. Enjoy.

They Were the First

2011-10-12T10:41:00.000-06:00

We now have a state capitol in Chapter 9 bankruptcy. Harrisburg, PA has filed for protection. I guess wealth has become less common in the Commonwealth. The city fathers took one look at revenue projections and saw they would never cover bond payments. Translation: Local economic activity is not generating enough revenue to cover local infrastructure costs. This is a severe problem. And to divert ourselves from it, we can start speculating which municipalities will be next. Cities failing puts strains on counties; counties failing puts strains on states. And then of course there are schools, utilities, transportation districts, etc. And on top of that, what happens when the Chapter 9 plans start cutting masses of employees, and the ones still employed find their pay and benefits drastically cut? Suddenly those public sinecures aren't looking so secure.

As If We Needed Any More Evidence

2011-07-12T15:39:00.006-06:00

OK, so I haven't blogged for awhile, and the following is a bit stale. Hey, I work for a living, and this isn't getting the attention it deserves.

To preface, for those of you who may think I was late to the bubble prediction bandwagon, I suggest you look here and see that I was predicting the train wreck in December 2005. Beat that, Nouriel Roubini.

We know that the overwhelming majority of opinion makers in the US are just sock puppets for the Financial Overlords. Ditto for our supposed intellectuals. They don't need to rub our noses in it. But along comes Roger Lowenstein in Bloomberg Businessweek to "explain" why there have been effectively no prosecutions resulting from the collapse. It's because, simpletons, there were no crimes committed. Demands to the contrary are just the result of our overheated, plebeian blood.

Well, Roger, here's the deal, and I'm speaking as a former prosecutor who's handled white-collar crimes, which is one more claim that you can make (Yes, I know Daddy was a Wall Street lawyer and Columbia law prof, but I have a shingle on the wall too, and my kids know that doesn't make them legal experts.): If this mess wasn't created by a tsunami of crime, we have glossed "criminal fraud" out of our legal system.

I'm no accountant, and if you want that kind of analysis, I recommend you go read Francine McKenna's column in Forbes, which is heavily linked. I'll stick with what we know of facts and law.

In 2002, the Dot Com Bomb and 9/11 had deflated the preceding bubble (Anybody remember how outraged we were over LTCM? Those were innocent times.), and investment houses and banks were sitting on cash with investors clamoring for it to go somewhere that produced a return. Fortunately, "help" was at hand: real estate.

First, create a demand pool for the money. This required bringing a pile of borrowers to the table who had no business being there. No problem. No-doc loans and "creative financing" (Read: Fake it 'til you break it.) bring everyone to the table.

Second, you need properties that "support" the loans. Again, no problem. You have everything from investment groups flipping properties internally to jack the prices to armies of in-house appraisers for whom "MAI" means "Made As Instructed."

Third, take that freshly inked paper, cut it up like paper dolls, and securitize it all over the place. Get the ratings agencies to help by declaring that poo no longer stinks.

Fourth, the piece de resistance. Cherry-pick the securitized pools and hedge. Then buy credit default swaps on both the bets and the hedges. And THEN sell the swaps upstream and downstream. AIG and the monolines will be more than happy to help.

Oh, don't forget to make sure the regulators remain lapdogs by reminding them that if they do their jobs, the house of cards will collapse, and then there will be no place for them when they leave government and want to earn some serious scratch.

And at every one of those steps, the commissions and fees run hot and heavy. And so do the fibs, the half-truths, the misrepresentations, the blind eyes, and the outright lies. Countrywide lied systemically to produce the greatest pile of toxic, residential mortgages in history. JP Morgan Chase wasn't any different on the commercial side. Chase propped itself up with a forced take-over of Washington Mutual (No, kiddies, it wasn't really WaMu that needed the propping.). Bank of America swallowed Countrywide with all the due diligence of a five-year-old dragging home a stray dog. And Goldman Sachs got caught buried shoulder-deep in the cookie jar, selling products it had created so it could bet against them. And on, and on, ad nauseam, ad absurdum.

And nothing. Few meaningful investigations, fewer prosecutions, and business goes on as usual. Except that it's right out in the open now; no one even bothers with back rooms. And it all gets ignored. So I guess you're right, Roger, in a sick way, because legally there is no crime without a conviction, and there can't be a conviction without a charge. But who are you going to blame, Roger, when Joe Main Street starts treating the rule of law with the same contempt his lords and masters demonstrate?

Koch Is Not It

2011-05-18T08:41:00.003-06:00

I'm brewing up a series of entries over the next few days, but I'll start with this:

Late last year, a group of merry pranksters issued a fake press release satirizing Koch Industries' environmental policies, using Koch's trademarks and name to make the release look like it was actually from Koch. FYI, Koch Industries is the Koch Bros., the billionaires who are funding the Tea Party and about every anti-Middle-Class piece of legislation in the country. Nobody was actually fooled into thinking the press release came from Koch, but Koch did have to spend some staff time responding to inquiries. Well, things like this aren't supposed to happen to People Who Matter, like the Koch Bros., so they decided to get to the bottom of it. They sued Bluehost and Fast Domain, the internet service providers (ISPs) the pranksters used for disseminating the release, here in Utah to get the names of the pranksters (Bluehost is based here.), alleging the pranksters had committed IP fraud and infringement.

Background: With any type of intellectual property, there are certain ways you can use it without paying for it. This is called "fair use". Go beyond fair use without paying, and you're infringing. One group of fair uses are informative uses. A reporter might use a company logo in a news story, a reviewer might quote from a book, and a researcher might cite to an earlier work, and none would be infringing the IP they are using. Another group of fair uses are political uses. For example, company names and logos are frequently used in strikes and boycotts, but the users are engaged in political speech and are Constitutionally protected.

An example, to give you an idea of how these things normally work. A couple of years ago, the outdoor clothing manufacturer North Face learned that it was being lampooned by a couple of people selling clothing under the name South Butt. South Butt was not only parodying North Face's name but also its logo and marketing slogan. And South Butt was making money selling recreational clothing, in direct competition with North Face. North Face sued, received a lot of bad publicity for picking on the little guy, and ultimately settled the case. The terms are secret, but South Butt's operations have apparently been limited in some way to minimize their impact on North Face. Commercial use, infringement, resolution. That's the norm.

Then there's the Koch lawsuit. The Koch Bros. targeted the ISPs so they could find out whom they really wanted to attack. Both ISPs caved the day after being served with subpoenas and turned over the names. One of the ISPs went so far as to justify its actions by saying it didn't want to harbor felons (Excuse me, but what happened to presumption of innocence? And has the U.S. become do corporate-owned that the Koch Bros. now have criminal charging authority? Memo to me: Never use these clown school ISPs for anything.).

The pranksters immediately ran into court to protect themselves by quashing the subpoenas. Koch's response, courtesy Parsons Behle & Latimer, would be laughable if it weren't so insidious and backed by so much money and political clout. It boils down to, "The pranksters' political speech isn't Constitutionally protected because it infringes on our IP." Which of course is exactly backward, because the Constitution trumps all other laws in spite of the recent efforts of Our Glorious SCOTUS (As an aside, during my first year in law school, Vic Filippini, the third-year in charge of my legal writing class, ripped me to pieces for making a backward argument like this, even though the brief he'd asked for was factually and legally impossible otherwise. If I'd known what I was doing, I'd have told him I was preparing for a career with a major, regional firm. Instead, I attempted to "correct" my deficiencies. Now he's a partner at Holland & Knight, and I get paid in muskrat pelts and sacks of feed. Go figure.).

Anyway, Judge Dale Kimball issued his ruling, and it's a smackdown of Koch. Basically says, "What part of 'protected political speech' don't you understand?" So what's the result? First, Koch Bros. can't use the info they got from the ISPs (Yeah, right.). Second, the ISPs had better lawyer up after rolling over and coughing up confidential information so readily. Third, Judge Kimball had better start watching out for a well-funded smear campaign, including Andrew Breitbart fake videos of him soliciting bribes. Finally, expect Koch Bros. to start a full court press on Congress to amend the IP laws and cut off all this "judicial activism." Because People Who Matter shouldn't have their business interfered with by the Constitutional rights of the rest of us.

Milestone

2011-04-14T17:33:00.001-06:00

My Subaru rolled over 300,000 miles today. Way to go, little car!

Space, the Final Frontier. Nevermind.

2011-04-12T18:24:00.002-06:00

In addition to this being the 50th anniversary of Yuri Gagarin being the first man in space, it's the 30th anniversary of the first Shuttle launch. Back then we could afford a space program and believed it should belong to all citizens. Now we're told we can't afford it and that it's all good if it's the private toy of the rich and of multinational corporations. How far we have fallen.

Train Wreck Reform

2011-03-30T09:11:00.000-06:00

Once again couldn't get this to post at Credit Slips, so here it is:

BAPCPA was a deliberate shot, below the waterline, at consumers and small businesses, and it was a highly successful shot, exacerbated by the wildly moving targets that are the courts' and trustees' expectations. Pre-filing analysis for either a 7 or a 13 has become rocket science, except that with rocket science you're at least dealing with, you know, science, as opposed to the whimsy of the gods. No matter what you're dealing with (qualifying a consumer for 7, reformatting and producing the accounting for a business 7, or dealing with a 13 trustee who has no concept of business operations or irregular paychecks), it's a labor-intensive mess.

Then there is personal Chapter 11, a saddle on a sow necessitated by the horse-and-buggy jurisdictional limits in 13 and exacerbated by the brain-dead semi-incorporation of 13 standards into 11 (but what can you expect from The Mind of Grassley). In all honesty, everyone is just making this up as they go, and I shall be long dead before any semblance of order is imposed. Pile onto this that the disparity of treatment between big and little keeps getting worse. Big 11s get away with pre-petition roll-ups and "reorganized liquidations" (*cough* Blockbuster *cough*) that would get an individual or small business bounced for fraud.

Finally, creditors are increasingly using the "reform" to take a dog-in-the-manger approach. This list is long, but these are a few notable locals: Bank of America/Chase (Why is it that every other mortgage has these two worthies in an owner-servicer pas de deux in which they torpedo short sales, proceed with foreclosure at a lower price, and then proceed with a claim for the full deficiency?), RC Willey (I shall never darken its door again. Dear Mr. Buffett, if you made your pile buying into companies with these tactics, you aren't the Sage of Omaha, you're the Don Corleone of Omaha.), America First Credit Union (With its reaffirmation policies, it needs to rename itself "America Last".), Celtic Bank (Sorry, it isn't my clients' fault your troubled assets ratio is back up to 90, six times the national median. It's a you problem.).

We're creating a bankruptcy system people either can't get into or can't stay in, and the system outside bankruptcy is reverting to debtors' prisons. Is it just me, or is there something wrong with this picture?

Triangle Shirtwaist Fire

2011-03-25T14:51:00.000-06:00

Today is the Centennial of the Triangle Shirtwaist Fire. Right about now, 100 years ago, a fire broke out in the Triangle Shirtwaist Factory. Due to unsafe conditions typical in sweatshops of the time, in 18 minutes 146 people were dead. For more information, go here.

If anyone wonders why I have been sickened for years by the free trade mantra and its cheerleaders like Thomas Friedman, there it is. Because we had the basic decency to acknowledge that disasters like that should not happen, we implemented building, fire, and health codes and worker safety regulations. The free traders have put our businesses, our industry, our people, and our nation at the mercy of countries that have no such decency. We are competing with imports from countries that are willing to have any number and variety of disasters so long as they can produce cheap goods that undersell and undermine our domestic economy.

There is a technical, legal term for free trade arguments that produce such results: crap.

Boise County Files Chapter 9

2011-03-06T15:46:00.000-07:00

As reported by the Idaho Statesman, Boise County, northeast of Boise up Highway 21 through Idaho City and Lowman to the pass over to the Stanley Basin, has filed for Chapter 9, municipal bankruptcy. It seems they screwed up a land use decision, the developer sued them and won a multi-million dollar judgment, and the county come anywhere close to paying.

There are several lessons to be learned from this. First, there are a lot of stupid people on the Interweb Pipes. The Statesman story was apparently linked to a bunch of right-wing websites (Drudge, Free Republic, Town Hall, etc.), and the knee-jerk comments started pouring in from folks who apparently hadn't even bothered to read the article (See comments by Ron Reale, Mark Babb, Christopher K, Teddy Kennedy's SEARCH+RESCUE, Joe Astroturf, Jack White, and golden_elixir for the most egregious examples.), screaming about how liberal Boise deserves this (First, Boise is not liberal, except in Idaho. Second, this is Boise County, not Boise City. Get a map, people.) and how this county was bankrupted by public unions (The Koch Brothers really have their meme rolling, here. You might want to check just how unionized Boise County is. Then check whether any union members caused the loss of the lawsuit.). With "civil" discourse at such a level, it's no wonder nothing is getting accomplished in this country.

Second, municipal bankruptcy is a world of its own. One of the commenters (johnnydoughey) asks a decent question: He thought you couldn't get discharged for liability for an illegal act. Well, there are illegal acts (criminal) and illegal acts (civil penalty). Municipalities can't be convicted of the former and can be excused for more of the latter than private people can. The developer's attorneys have already promised a 921(c) motion for dismissal for a bad faith filing, but I doubt the court will grant this (I wonder if the commenters who are currently complaining about the federal court entering the judgment will also complain about the federal bankruptcy court providing protection from that judgment. They're both exercises of federal authority, after all.). It remains to be seen if the county will come up with a viable plan, though.

Third, if you're going to be in local government, please learn how to make land use decisions. At issue here was a teen treatment facility that the county put so many conditions on, it was economically unfeasible. The conditions themselves, frankly, weren't the problem. Most of the conditions had to do with assuring adequate infrastructure back there in the hills. The problem was that the county had already approved other, larger developments back in those hills that required most of the same infrastructure but had applied no such conditions. In other words, the county was trying to charge all the infrastructure costs of several developments to one development, a constitutional no-no, and that was also discrimination against a special needs facility, a Fair Housing Act no-no. On top of that, county staff and elected officials were apparently advising the opponents on how to build a record to block the development, also a constitutional and FHA no-no. The developer filed suit for damages and nailed the county good.

Folks, if the city slickers are coming to your corner of Hay Seed World to make a quick flip on your cheap land, lawyer up and do what your lawyers say. I guarantee the developer has and is mapping out every move you can make. The Boise County commissioners didn't listen when the Boise County attorney said they were screwing up. The Boise County commissioners didn't listen when the attorneys for the Idaho Counties Risk Management Program (the counties' insurance pool) said they were screwing up and (SURPRISE!) the Program has denied coverage. Locally, Draper didn't lawyer up when it was reviewing SunCrest, and it will be dealing with it forever. Bluffdale didn't lawyer up on the one-acre zoning lawsuit and ended up losing an FHA case (It should consider itself lucky the developer wanted the development and not damages, or else we would have had a Chapter 9 here in South Valley.). Whether you're in private business or public office, it's never a good idea to be your own legal counsel.

I Really Don't Care What Paul Jackson Says

2011-03-06T14:06:00.000-07:00

A new article over at Credit Slips comments on Paul Jackson's chest-thumpings over an Alabama trial court decision on a chain of title issue. I'll let you read about it over there. I'm posting here because I couldn't get my links to work over there. Here it is, with links:

Jackson is a long way from an objective observer. In law practice, he represented banks and servicing shops. He thinks that second mortgages are the chief problem with short sales, not the endless feedback loops within the first position lender and its servicers. He's a leading proponent of the theory that strategic defaulters are going off on shopping sprees (No comment on whether such opinions are why he remains ABD in the consumer behavior doctoral program at USC.). If you have Yves Smith and everybody else, including Janet Tavakoli on one side and Paul Jackson on the other, I'm backing Yves.

On the substantive side, I think you're exactly right. I practice in two non-judicial foreclosure states, and once that sale closes, you don't get it unwound. The debtor came to the game too late. In the cases where the debtor gets to court before the sale, the banks are losing.

Bankruptcy Exemptions

2011-03-02T06:48:00.001-07:00

OK, enough ranting and back to some nuts and bolts.

Last June the SCOTUS a decision in Schwab vs. Reilly concerning when a party could challenge a claimed exemption. Debtor had claimed an exemption in some personal property and set the value for it at exactly the exemption amount. It turned out the property was worth more than that, and the trustee wanted to liquidate the property and distribute the difference. Problem was that the trustee didn't object by Rule 4003's 30-day deadline. The majority ruled, "Sorry, Debtor, notice matters, you gave no notice there was anything to be objected to, so you only protected the property up to the value you listed, and the trustee can pursue the overage." The dissent wrote, "30 days means 30 days. Period. The property should be fully exempt."

This case arose because Debtor was in a state that had not opted out of the Federal exemptions and so had a "floating exemption" that she could split among different pieces of property. That's why she low-balled the value of the property at issue; she would have more of the exemption left over for other property. Some states have that floating exemption too. For those of us in opt-out states that don't provide a float, the opinion was not very exciting. Here in Utah, you get a $2,500 exemption for your car. You list its value as $2,000 but it turns out to be $3,000, you get the same exemption.

But what about exemptions that don't have set limits? Suppose you valued the exempt property at X, but it turns out to be worth twice that. Can the trustee come in at any point and say, "You only exempted the claim amount, and I'm taking the rest"? I don't know. I do know that in Section III of its opinion, the SCOTUS reaffirmed Taylor, which held that listing an exemption value as "unknown" gives notice of a valuation issue and sets the 30-day clock running (Yes, Taylor concerned an exemption with a fixed limit, but to me, the issue is notice, and "unknown" is a red flag.). I've always used "unknown" in the schedules when we didn't know a value. Some people get bent out of shape by that, but until they amend the Code or the Rules, I'm going to keep on using it, and now I have an extra reason. Setting a value where I don't have one is nothing but a trap for the debtor.

On a side note, the alignment of justices in Schwab was perhaps more interesting than the opinion. The majority was written by Thomas (?) and joined by Scalia, Alito, Kennedy, Sotomayor (!), and Stevens (!!). The dissent was written by Ginsburg and joined by Breyer (!) and Roberts (!!!!!!!!!!!!!). Go figure.

Small Business Is In Great Shape

2011-02-20T11:15:00.000-07:00

Just ask the Wall Street Journal and the Chamber of Commerce. According to an article this week in the Journal, business bankruptcies are down, so things must be improving for small businesses. The Chamber of Commerce chimes in with this line, with the C of C VP for small business offering the usual pap about small businesses being better positioned to recover than the big boys because they are more nimble.

First, let me say that anyone who uses the word "nimble" in a business context should be punched in the face, preferably by someone wearing a chain mail glove. It is a noxious, marketing buzzword from Dot Com Daze, when investors deliberately checked their brains at the door so they could avoid noticing the hucksters were making their sales pitch with a shovel. I was there, I remember. There was a poster that consisted of a picture of a blow dryer, an arrow pointing at the ON switch, and the caption, "Press here for marketing presentation." Unless you're talking about cutting horses and herding dogs, there is no place for "nimble."

The Journal and the C of C can allege all they want that the bankruptcy drop shows a small business recovery. I would submit it shows something else: Small businesses are finding some financing. Oh, not enough to make a difference. Not enough to restructure, right the ship, and set a new course. No, money like that is reserved for the big boys. The C of C conveniently ignores that, if you own the game, you don't need "nimble." If a small business owner tries to raise meaningful capital, he inevitably violates a securities law, and the federal and state regulators swoop down, shut him down, take everything, and still make him do the perp walk. That's what they spend 99% of their time doing. Meanwhile, the big boys can raise billions through outright fraud, squander it through more outright fraud, and get no more than a slap on the wrist (I'll blog about the Friday night dismissal of all charges against Angelo Mozilo later.). So no, folks, I do not believe prosperity is just around the corner in small business world. Quite the contrary.

What I do see is small businesses getting just enough financing or payment deferrals to play kick-the-can. The business owners who are coming to me are no longer talking about recovering, turning things around, or riding out the downturn. They're talking about "surviving until." Until the last kid graduates next year so they can permanently downsize. Until they qualify for Medicare and Social Security in two or three years. Until the paperwork on their visas goes through and they can dump what's left of their lives and move away (Yes, it's gotten to that point.). They're at the ends of their tethers, and they're hoping to kick that can far enough down the road to salvage something, for their kids if not for themselves.

They know bankruptcy can't help them. Another inconvenient truth the C of C isn't letting on is that Lloyd Blankfein doesn't have to personally guarantee GoldSacks' loans; small business owners have to personally guarantee everything. It doesn't do any good to put the business in bankruptcy; the creditors will go after them personally. If they file personally, the business is cooked anyway, and it's over. It's hard to be "nimble" when the bank has sunk your feet in a tub of concrete.

So they try to stretch it out. Until. That's the state of the American Dream.

What Passes for Business Reporting in Utah

2011-01-23T09:30:00.003-07:00

If you want business news in Utah, don't look for anything that matters from any of the local, mainstream media. The bulk of the "business reporting" here is nothing more than company press releases with no editing or additions. An article on the City Creek Center in this morning's Trib is a prime example. Taubman Centers, Inc., is developing and managing City Creek, and it has issued a press release about bringing Linda Wardell to town as general manager. The article is nothing but PR gush, waxing rhapsodic about the big plans for City Creek and touting Wardell's experience as general manager of The Pier Shops at Caesar's in Atlantic City. And the Trib swallowed it and published it whole.

The Trib could not have done any research for this article. A basic Google search would have shown that, when Taubman launched The Pier in 2006 (a major overhaul of an existing mall on the site of the old Million Dollar Pier), it planned to install up-scale shops and restaurants anchored to a big, tourist draw (Caesar's at Atlantic City). In other words, the same plan it intends to use here (Granted, Caesar's and Temple Square are different draws, but they are still big, single-anchor draws.). A little research also would have shown that last year Taubman and Wardell failed at The Pier; Taubman strategically defaulted on a $135 million note and turned the keys over to Bank of America (See here and here.).

That's a real nice record of success coming to town. And the Trib missed every bit of it. Way to keep your readers informed, guys.

The National Football League

2010-12-19T12:03:00.002-07:00

OK, time for a big, NFL prognostication.
NFC East: Eagles and Giants are neck and neck, and guess who collide at New Meadowlands today. Even if the Giants win, they are by no means a lock because they have to go on the road against a desperate Green Bay and the Dead er Redskins. If the Eagles win, it's game over, because they are home for The Team Formerly Known as the Vikings but that now Wants Brett Favre's Corpse as its Starting QB before closing at home with Jerry Jones's Rolling Train Wreck.
NFC North: Da Bears have a one game lead on the Pack and are about to expand it. Da Bears are technically on the road against The Team Formerly Known as the Vikings but that now Wants Brett Favre's Corpse as its Starting QB, but they're playing it in Gopherville because apparently the engineers who designed the Deflate-O-Dome didn't get the memo that there's this thing called Winter in Minnesota, and that environment will feel about like Soldier Field. The Pack, on the other hand, will be the latest to be assimilated by the Foxborough Borg. That puts Da Bears up two games with two games left and could well push the Pack completely out of the playoffs (at which point the drainfield known as the NFC West should have to give up its slot).
NFC South: Looking for entertainment, here it is. I have to give the nod to the Falcons, though, even though they have the big showdown with the Saints next week. First, that game is at Atlanta. Second, the Falcons face Miss McGillicuddy's Girls' School, Seattle Campus, this week before closing with Miss McGillicuddy's Girls' School, Carolina Campus, whereas the Saints are facing that brutal Ravens defense this week.
NFC West: Does anyone actually care? The Shams and Seaturkeys are tied for first, and both have losing records. If you wanted to fix this division, you'd have to call Roto-Rooter. The Seaturkeys management's biggest move was bringing Sneaky Pete north out of El Lay one step ahead of the law. I think the NFL is trying to find a way to sell this division to the CFL for a used hockey puck.

AFC East: Patriots. Patriots. And just for a change, Patriots. The J-E-T-S get the leftovers.
AFC North: Who wrote this schedule? Steelers and Ravens are one game apart and don't face each other in the stretch. Steelers are likely to keep that one game lead, though.
AFC South: This may be decided today, as the Jags and the Colts are battling in Indy as I type. Advantage, Manning's Machine, although the Colts still have to go through Davis's Dystopia next week, while the Jags face no such challenges.
AFC West: Advantage, Super Chargers. The Chiefs have yet to show me they care enough to bring it when it matters. The Chargers will win out, which is more than I expect from the Chiefs, even though they get the Alcatraz Alumni at home.

That's Just Crazy Talk

2010-10-22T18:58:00.000-06:00

Another topic Mary, Marci, and I discussed at lunch was how loony the rhetoric is getting in the foreclosure mess, from all sides.

First, an example from the lender side. I realize that the Wall Street Journal is little more Rupert Murdoch's gift of an in-house organ for the banks and the brokerages, but even by that low standard, Robbie Whelan's column yesterday is a high in low. He basically blames the whole fiasco on lawyers who dare to defend homeowners and demand that banks actually produce evidence to support their claims before they take someone's house away. Even by Wall Street standards, such a claim takes a lot of chutzpah, since the claimant has to ignore all the lender fraud we're finding shot through the system. This claim might actually surpass the lie the banks originally spun to us (A lie that our wholly owned Treasury Department and regulatory agencies continue to treat as reality.) that the mess was the result of those nasty, greedy borrowers and that banks were just victims (sniff, sob, sad-puppy-dog-eyes). I think the new shovel-load surpasses the old simply because the banksters are now so desperate they're trying to blame the one, remaining profession capable of punching them square in the mouth: we eminently killable lawyers. That's desperation to the point of madness.

As an aside, the "blame it on the borrower" line has recently had another hole blown in it, hopefully below the water line. Professors Adam Levitin or Georgetown and Susan Wachter of Penn recently published a paper showing that the credit bubble was largely generated by excessive supply of capital, with the demand being ginned up by ruthless marketing to provide a place to dump the supply (and generate lots of commissions and fees).

The borrower side has its own dubious tales, but at least someone who's about to be thrown into the street has an excuse for desperation verging on madness. Nevertheless, I consider it better to plan from within reality, so here goes.

Perhaps the most popular Kool-Aid tale on the borrower side is that this mess is so big that mortgages will be canceled and people will keep their houses for free. There are a lot of scam artists, some of them lawyers, encouraging this belief. I'm here to discourage it. With extreme prejudice. The mere fact that your lender securitized your loan no more invalidates your note and mortgage than a commercial landlord's pledging a rent stream as collateral for a loan invalidates the lease. Sorry. The mere fact that those securitization parties hedged their positions with credit default swaps that were train wrecks from the start has no effect on the validity of your loan either. Sorry again. And the mere fact MERS can't produce your note doesn't mean there isn't somebody out there who actually holds it and who will one day come knocking on your door. Sorry a third time. And what I tell you three times....

To sum up, lenders can't blame borrowers for their own mistakes, and borrowers can't ignore payments and expect to keep collateral. There's a new Harry Potter movie coming out, but the magic wands don't work on this side of the screen.

Real Estate Strangeness

2010-10-20T18:10:00.002-06:00

Lunch with a couple of great people today, Marci Jackman and Mary Olsen, both of Keller Williams South Valley Realty. We hashed over a lot of points, but the two biggest were saved for last. First, none of us could figure out why there has been an up-tick in housing starts. The market is awash with inventory, fire-sale prices are the norm, the move-up market is shriveled because so many are upside down and can't move up, and too few people have a steady enough income to support a 30-year risk. Why build more? I don't know. I suspect it's a combination of irrational optimism over what the current, historically low mortgage rates might produce (People must start borrowing at these rates. Of course someone still has to be willing to lend, but don't sweat details.) and force of habit. The old shark thinks that if it just keeps moving forward, everything will be alright. I think not.

Then we kicked around why, after picking up the loan mod pace for a few months, have all the banks gotten back on the snail train. This one I think is pretty simple. All the way through HAMP, they sat on the applications for the same reason they sat on the foreclosures: As long as they stalled, they could carry the paper at book value instead of marking it to market. It was extend and pretend. Then HAMP started winding up, and they pushed through the applications they really wanted to push through. Now HAMP is gone, it's a new program, and it's back to extend and pretend. I also think that's why banks are pushing for deficiency notes on mods and short sales. So long as they hold paper for the balance of the loan, however unproductive, they can keep pretending book value is reality. What a world.

Dropping Like a Shot Caille

2010-09-12T19:34:00.002-06:00

Stuck in the middle of a nasty, multi-million dollar legal battle, La Caille Restaurant at the mouth of Little Cottonwood Canyon has been put up for sale. For a cool $20 million. The only way it's worth that is if you tear the restaurant down and build it out as ski townhouses.

Locally, La Caille is still treated as an elite restaurant. In reality, it's nearly as dated as the Five Alls. Lots of restaurants in the area surpass it without breaking a sweat. For years it's been surviving on prom dates and tourists who don't know any batter, and now thanks to the Internet, both those groups know better. Other than driving by for the Christmas lights, the place doesn't deliver much.

But it has that view. So if you're an investor, what do you do with it? Buy it for $20 million, then dump another ton of money to upgrade it so it can compete with Stein Eriksen and the like so it can justify its prices and hope you can get a revenue stream to cover the bill? Seriously? In this economy? Or do you start over and build canyon recreation townhouses? County Planning may balk at first, but if their alternative is yet more commercial dead space, and at such a visible location, I think they'd come around.

La Caille may well be an endangered species.

Do We Ever Learn Anything?

2010-05-25T11:53:00.002-06:00

So the sovereign debt crises in Europe are creating an unexpected windfall here in the US. Capital is fleeing Europe and being dumped into bonds here. This is driving down bond yields and returns tied to them, notably mortgage rates. Just why US securities look so much better than anyone else's is beyond me, but the real issue is what do we do with this windfall. So far I'm just seeing a return to the crap that got us into this mess.

I've been saying for a couple of years now, and I've been a long way from alone on this, that as bad as the 2007-2008 option ARM resets were, the 2010-2012 resets would be worse. Now we've been given a golden opportunity to soften that blow. First, with rates softening, the resets will not be as severe. Second, more people can qualify for refis and get out of the ARMs. These two would go a long way toward restabilizing markets and values.

But it all depends, as it always does, on the third leg of the stool. If people reduce their mortgage payments, what will they do with the new discretionary funds? Will they pay off debt and try to get out from under? Will they invest it here, either directly in their own businesses or indirectly through some savings vehicle? Or will they just spend it on stuff and ship all that cash back overseas. All signs indicate the last option, and with the active encouragement of all the powers that be.

And so it looks like we'll ultimately squander this opportunity. We still haven't learned that a decrease in expenses is not the same as an increase in income. We still haven't learned that our homes are not magical ATMs that can paper over our budget shortfalls. We still haven't learned that leveraged loads of junk shouldn't be our great goal in life. We still haven't learned that shoveling money out as fast as it comes in is not a productive pastime. Letting flow out what flows in is a job for sewer pipes.

Professional Civility?

2010-05-13T08:16:00.003-06:00

An article on the ABA website this morning left me shaking my head about my remaining years in this profession. Sarah Allen wanted to go to law school. Let's set aside the wisdom of that in the face of this economy; she wanted to go. As with most people, she didn't have the money to pay for it and was worried about the debt she'd end up with. She decided to solicit donations, not just for herself but to set up a general scholarship fund.

The response was predictable: The legal message boards lit up with the usual anonymous, infantile, Gen X vitriol that seems to make up half of Internet traffic. Nasty stuff. And so she's shut the whole thing down and is reconsidering going into law.

But the really disturbing thing has been the responses to her withdrawal. No comments about her soon-to-be "colleagues" calling her ugly and saying she should raise money by becoming a prostitute. No, everyone is saying she needs to have a thicker skin to be in law. Anyone else apprehensive about what these guardians of justice are going to be like in court or around the negotiation table when there is actually something on the line?

We've made a lot of noise for a number of years about improving civility in the profession. It isn't sinking in, and the shark tank is getting more savage by the day. And unfortunately, this is the behavior everyone notices. It should be small wonder that the public views us, not as guardians of justice, but as mercenaries who operate under the motto, "Lawyers: Bringin' the Hate Since the Dawn of Time."

Of Gold Sacks and Garbage

2010-04-22T06:09:00.000-06:00

So Goldman Sachs (Gold Sacks to those of us who have watched its operations with ever-increasing horror) is finally getting spanked by the SEC. GS created and marketed a junk-stuffed synthetic CDO at the request of and with the advice of hedge funder John Paulson. No legal problem there. GS disclosed to the CDO buyers that Paulson was investing in the CDO. No legal problem there. Except that GS left out these teeny-tiny details: Paulson was betting against the CDO, he had picked the CDO content so he could bet against it, and GS sold him his bet. Oops. Hence the SEC action.

What happens now? That depends to a great extent on GS. Remember that GS is a publicly traded company, so it is required to make certain disclosures, and its disclosures (required or not) are heavily regulated. And for the last week, GS has been digging itself deeper with every disclosure. GS apparently received a Wells notice (the tap on the shoulder the SEC gives a company before it files an enforcement action), and the general counsel determined that wasn't a material event requiring disclosure (Translation: We insiders know the stock is about to tank, and we want an opportunity to dump our shares before the public finds out. That's called insider trading kids. I wish I made his salary for giving that kind of advice.). Then GS issued a statement claiming the SEC complaint had no basis in law or fact, a statement that will be classified as a material misstatement in a disclosure should there prove to actually be a basis to the complaint (and it will so prove). And GS has kept swinging from there. The stupid, it burns.

GS could start getting smart and try to resolve this thing, which everyone expects it to do. The question there is whether the SEC is ready to deal or if it wants a pound of flesh and doesn't care about Portia's collateral damage arguments. GS may find itself in a box and try to get out using the nuclear option of showing the SEC just how deep the rabbit hole goes, disclosing other deals and other players. And then the fun will spread, because the markets will not be able to ignore a mess like that the way they've ignored economic reality the last year.

Of course there's a "Happy Happy Joy Joy" crowd that thinks nothing will come of this, it's just political, GS didn't do anything wrong. Fareed Zakaria, CNN's alleged financial genius talking head, says this morning that the SEC case is weak because it's based on the CDO going bad, which just happens and isn't illegal. Excuse me Fareed, but you're exactly wrong. The complaint is based on material nondisclosure, and you just showed the world you've been drinking deeply from Alan Greenspan's "No One Could Have Known" Kool-Aid jug. That sound you hear is whatever respect I had for Zakaria running over the hill with its hair on fire.

So what's next? Well, the markets are going to have to stop their exuberant climb, which was based on nothing anyway. And the Too Big To Fails will find that failure is an option because their revenue is based on destructive practices that need terminated. These changes are necessary if our economy is to survive, and they will be painful. Just not so much to those of us who are mere mortals and do not live in such rarefied air. Let's face it, how many of us have seen any return from the market run-up this last year? How many of us get financing from the likes of GS? Not that many. Jobs are scarce and shaky. Our customers are scared and aren't buying. The little banks that finance us and our customers are still failing at a record pace (and the Bigs are taking the rake, so any clampdown on them is a plus for us), and financing will only get tighter as an even bigger tsunami of ARMs resets over the next two years (which will also result in more foreclosures and more real estate deflation). We're in a mess that will take years to sort out, and what comes out the end will be a completely different animal than what went in.

Just do yourselves a favor. Introduce yourselves to your neighbors and local businesses. They're the people you're going to be depending on for the next several years.

Dear WSJ: Missing a Step?

2010-01-13T09:34:00.003-07:00

The Wall Street Journal came out with this article this morning on Bank of America's successes from its real estate investments. Note that the article nowhere mentions the SEC's expanding investigation of BofA (The article also refers to Deutsche Bank's revenues without mentioning its exposure to Dubai's unfolding defaults, but that would be asking for just too much, wouldn't it.). You think that cooking books and pumping offerings might have some effect on posted earnings? Apparently the Journal doesn't; BofA's revenues are just from great management. So, do you think the Journal is an information source, or just a cheerleader?

How 'Bout That Recovery

2010-01-11T17:22:00.000-07:00

I'm not one of those people trying to gain fame and fortune from constantly preaching doom and gloom. I wish we were pulling out of The Great Recession, and I believe that the stimulus is a good idea and that we need more (Regardless of the big headline this morning in which AP trumpeted that its analysis shows the stimulus hasn't done anything. An analysis AP has yet to release, giving us only selected quotes from the economists AP selected to review the analysis. What's with that?). That said, I'm not seeing evidence that we're pulling out or that we will any time soon.

Today's case in point: Kiddie Kandids, the ubiquitous mall store for children's photos. Not so ubiquitous now. Employees got word last night that the stores weren't opening this morning and the company is diving into Chapter 7. The company has set up a blog to provide updates, but all it currently amounts to is a press release, and it doesn't take feedback.

Another hole in the mall. Actually, a couple hundred malls. More dark retail space, more jobs lost, more bad loans, more of less. The mere fact that a few thousand people are making a mint on Wall Street doesn't mean this economy has leaped from its sick bed and entered the decathlon. Regardless what the pundits are saying, most people are in pain, and if the pain is reducing, it's only because people are going numb.

You Have to Call Things What They Are

2010-01-07T21:24:00.001-07:00

I try to be a decent person, at least as far as my profession allows me (Don't be fooled by distraction noise from bar associations about "civility guidelines." That has no bearing on how Biglaw attorneys will treat mere mortal laity and even less bearing on how they treat lesser attorneys such as Yours Truly.), but ultimately things should be called what they are. The economic commentary site www.marketoracle.co.uk is a sack of Randonazi and Deep Libertarian nutbars, and as is SOP with folks of such persuasion, they are mind-numbingly hypocritical, espousing free speech while crushing it at every turn. I have posted several comments taking issue with some of their more absurd, tin-foil beanie commentators (cough, Gary North, cough, Nadeem Walayat, cough), often agreeing with another commentator on the site (e.g. my comment on Walayat's posting on Iceland's rejection of the Icesave agreement, in which I agreed with Mike Shedlock's posting, which was 180 degrees from Walayat's), and none of them have been approved. As in NONE. Nada. Zip. Gar nichts.

Well I'm sorry, but that's just crap. And so is Market Orifice.

Oh Yeah, Real Estate's Booming Again!

2009-11-27T16:24:00.002-07:00

So, October new home sales climbed more than expected in November, and mortgage rates are once again at historic lows. Let's break out the champagne!

Or not. First, the increase was still pretty pathetic when compared to a healthy market. Second, the banks are getting money at effectively 0% from the Fed, which means there is upside to any mortgage rate they use; too bad the Fed can't keep it going, so that bit of rocket fuel is bound to go away. And third, the entire increase can be attributed to buyers rushing to lock in the tax credit or to funds making bulk purchases of vacant new construction. The former is unsustainable, and the latter just means there will be case lot sales of houses come Spring as the funds try to flip and take their profits, which means the market will be driven down just as people start to list their houses for the peak season.

Capmark Craps Out

2009-10-25T18:38:00.001-06:00

Capmark Financial Group, formerly GMAC's commercial real estate finance arm spun off to a consortium of KKR, Goldman Sachs Capital Partners, and Five Mile Capital Partners three years ago for a cool $2.1 billion, has filed Chapter 11 bankruptcy in Delaware. Word is that KKR had all ready written off its investment in toto. Gee, someone knows how to mark to market after all. A Warren Buffett entity had an offer on the table to buy every asset that mattered for $490 million (Over 75% hair cut! Love them green shoots!), but the bankruptcy will require more of the deal to be cash, so we'll see if The Sage walks away. If he does, the only "reorganization" coming out of this Chapter 11 will be moving the chairs around at the auction of everything that can be characterized as an asset.

Note that Capmark Bank, Capmark's wholly-owned industrial bank based here in Utah to take advantage of our nonexistent banking laws, is not part of this bankruptcy. Now before all you jingos start going, "Hoowah Utah!" be aware that earlier this month the FDIC forced Capmark and Capmark Bank into a series of cease and desist orders that: 1) required Capmark to pony up an additional $600 million in capitalization for Bank, 2) requires Bank to file a new cap plan by Thanksgiving, and 3) effectively precludes Bank from even breaking a roll of quarters without prior FDIC approval. With Capmark in BK, that cap plan is about as likely as my winning the Mr. Universe title. Worse, the US Trustee in Delaware may well say, "That $600 million needs coughed up and put in the bankruptcy estate." Which means that Capmark Bank and its $10-11 billion in "assets" (not marked to market) is circling the drain as we speak.

On top of all this, a 4 September article from Bloomberg said that regulators ranked Capmark Bank as "well-capitalized." The C&D orders were entered less than a month later. Is there anyone driving this bus? Do I really need to ask that question?

Back to Technical Stuff

2009-08-14T17:59:00.003-06:00

Buildings presently under construction are governed by the 2006 International Building Code. Chapter 2 of the IBC includes over 600 definitions of terms used elsewhere in the Code. Believe me when I tell you that, in any code, the devil is in the definitions.

Let me give you just one example. "Approved", which is used over 800 times in the 2006 IBC, is defined as "Acceptable to the code official or authority having jurisdiction." Translation: Something is approved if and only if the building department says it is.

Now theoretically the building department can get so off base that its definition of "accepted" is unacceptable. Do you have any idea what it takes to get a court to say so? Believe me, you don't want to spend the money to find out. Make nice with your building inspector.

Speaking of SunCrest...

2009-08-14T17:54:00.002-06:00

...Zions Bank is suing Draper for $25 million for interfering with its development. Even though you can't get anyone to buy up there because you can't get any financing up there because no geotech engineer will sign off up there because the whole thing is slumping. Talk about drinking funky Kool-Aid. Draper scewed up, all right; it screwed up when it greenlighted that turkey in the first place.

Well, We're Gaining Ground in Something

2009-08-14T17:46:00.003-06:00

We're No. 5! We're No. 5!

Yes, Utah is now fifth in the nation in foreclosures per capita. I knew there was only so long we could hide all the distressed properties in the peculiarities of local culture. The troubles are busting out everywhere now. The Draper Bench is a sea of REO. I think they should change SunCrest's name back to Widow Maker because there must be a bunch of angry housewives up there ready to kill their high roller husbands. There are several other such choice areas around the valley, St. George is a train wreck, and from what I can gather here, so is Heber.

Anybody who thinks this market has bottomed is drinking Realtor Kool-Aid.

When It Falls Over?

2009-08-06T15:23:00.002-06:00

And the answer is, "This is the day the Odd Fellows Hall will be moved into place."

The federal courts want to expand to take up the entire half-block along 400 South between Main and West Temple. Rather than tear the historic Odd Fellows Hall down, though, it was decided to move it across Pierpont Avenue. But having been jacked up and spun around, it's been sitting on its cribs and beams for a couple of months, waiting for the general contractor, Layton Construction, and the moving sub, Emmert International, to sort out a payment dispute. That can't be good for a building that's 118 years old and could easily disintegrate into a pile of rubble, thereby mooting the issue. In the mean time, the court project is on hold.

The thing I find peculiar here is that this is a GSA project. I would venture to say that every GSA project I've been associated with required the general to post a performance bond. Why isn't there one on this project? And if there is, why hasn't it been called to get this project off the dime? And why haven't any of the media reporting on this thought to ask these questions?

Grocery-Go-Round

2009-08-05T19:20:00.003-06:00

Does anyone really want to run a grocery store here (See here and here.)? Remember when Safeway and American Stores ran stores here and then shut them all down (although American Stores maintained its corporate headquarters here and even built a new building, which it then abandoned when it sold out to Albertsons, which then sold to Supervalu, which has now sold to Associated Foods, and I think I'm getting dizzy)?

Anyway, Supervalu is dealing the stores it recently acquired in its Albertsons acquisition to Associated Foods, which is a co-op consisting of Ream's, Winegar's, Kent's, and Harmons and operates Macey's, Dan's, Lin's, and Dick's Market. The deal involves 36 stores and will boost Associated's number of company-owned stores from 22 to 58.

I don't mind the transfer itself. I've always done most of my shopping at Associated's stores, so this isn't going to change my habits. My concern is that a number of these sites have to be in direct conflict with the member's stores. Think about that laundry list in the previous paragraph and how many have an Albertsons close by. I'm wondering how long this will last before members start pressing for closures. Any way I look at it, I see more dark grocery stores in my crystal ball.

Is This Any Way to Run an Education System?

2009-08-05T18:44:00.000-06:00

By any, objective measure, Utah has its peculiarities. Perhaps none are so glaring as its treatment of schools, in spite of a lot of lip service being paid to kids and their education. Among the many oddities, I shall point out these: 1) Although we have burgeoning subdivisions full of burgeoning families, schools have no authority to ensure that developers set aside land for schools; 2) as the Canyons-Jordan debacle shows, sections of school districts may secede without any say from the rest of the district (or other districts that end up having to pay equalization money); and 3) you can just about open up a school out of the trunk of your car.

Witness the Bob Jones tandem train wreck, the John Locke Academy and the School for Autistic Healing. A real estate developer, Jones was flying high until the market turned. He used his cash flow to finance the schools, and by most reports, they were good facilities. But then the market did turn, and the money ran out, and the schools crashed and burned. Parents were left scrambling for alternate schools, especially tough for special needs kids, and often after having paid tuition up front for educations that now would never happen.

I can't say Jones is blameless in this. He looks like yet another Utah glad-hander who stretched everything well beyond the breaking point. But I have to ask, "Where's the bonding? Where's the back-up plan?" The quick and dirty answer is that they don't exist because there is nothing in Utah law requiring them. Our Glorious Legislature is very keen on making it easy to provide "alternatives" to public schools, but it doesn't want anyone to be responsible when those "alternatives" go belly-up. Anyone, that is, except the public schools, which must now scramble to find places for all these kids.

The "Free Capitalist" Roped In

2009-05-28T15:10:00.000-06:00

As anyone who reads my blogs knows, I was always leery of the real estate boom. I've seen too many of them bust. By the end of 2005, I was warning anyone who would listen they were making long term investments with a short term upside. By the end of 2006, I was setting off flares. Nobody wanted to hear, and here we are.

During all those smoke and mirrors, people were either shoveling money in or getting others to shovel in. And they all had good excuses. Everybody was doing it (Which was nearly true.). There didn't seem to be anything wrong with it because it was all out in the open and no one was getting busted (Which was also true. TV, radio, and billboards were full of ads for strawmen and flips, and neither the state nor the feds seemed to be cracking down on it in any way.). And there was one company with a massive profile that seemed to be doing it all without any regulators saying "Boo": Franklin Squires. I tell you it was impossible in the face of all that to convince people to stay away from the game.

And of course the face, the brains, the man on the throne of Franklin Squires was Rick Koerber. And as things fell apart, a lot of the people who got into serious legal trouble seemed to be Koerber's alums. Yet Koerber himself was unscathed. In fact he got louder, directly challenging the regulators, at one point seemingly making the state securities division turn tail.

That was curious. And the reason was obvious. FIHP. Koerber had friends in high places. Specifically Herriman's own Carl Wimmer, who ran interference for Koerber and even instigated a legislative audit of the securities division when it had the temerity to investigate Koerber. You tax dollars at work.

Well, the legislature couldn't audit the SEC or the FBI or Brett Tolman's office. And now Koerber's indicted, and Wimmer is backstroking so fast I think he just burned Michael Phelps. I guess he wasn't too big to fail (And trust me on this, nothing is. Empires have failed. What makes banks and brokerages think they can't?).

Remember as you go down the road that there are certain truths that never seem to go away:

If it seems too good to be true, it is.

There's no honor among thieves.

There's always a bigger fish.

Stock Drops

2009-05-21T08:26:00.002-06:00

I represent a contractor in a dispute with Stock Building Supply over a supposed balance owed. The case has been nearly dormant for awhile, and I've spent the last couple of weeks prodding opposing counsel to get things moving. Last ninght I finally got a response, essentially along the lines of, "Hey, where have you been? Stock filed Chapter 11. This case is dead."

Now really, I try to keep up on things, but this completely fogged by me. I went back and checked my news sources and saw that the whole thing has mostly been under the radar. I guess it's a sign of the economic times that a major construction supplier can be sucked into a black hole, and the only coverage is between the classifieds and the obits. Probably also a sign of what news reporting has become.

So what do we all take away from this? Well, my client is basically in a wash. He won't get the money he thinks he's owed, but he's not going to worry about Stock's claims against hime either (Yes, I know, the trustee/DIP could still pursue him, but he's too small a fish for these circumstances.). Me? I've had some potential billables get cut off, but I've been in this game too long to bother counting it until it's in hand (Let's just say I have a cash mindset, not accrual). Other contractors? If you were planning on using Stock, better get a new plan. In general? In spite of the smiley faces everyone is now painting on the economy, there's still a lot of turmoil and downside out there.

What a Mess

2009-04-25T18:58:00.002-06:00

Well, as I wrote on Christmas Eve, the only thing keeping Sportsman's Warehouse going was the interest of a Canadian co-op, and the moment UFA Co-operative pulled the plug on that deal, it was off to bankruptcy court. And as I predicted in that same Christmas Eve sermon and again on 14 January, General Growth Properties has likewise dived into bankruptcy court, leaving a wasteland in Cottonwood Heights (including killing off the TGI Friday's there) and stiffing the Fashion Place contractors for several million (If the contractors were smart, they'd form a consortium, foreclose all their mechanics liens together, do a workout with the prime lenders, and take over. It's now the only east side regional mall between South Towne and downtown and looks to stay that way awhile.). Commercial real estate loan defaults have quadrupled since last year as vacancies in all types of commercial space keep rising. And, oh yes, home sales are down too, in spite of blandishments to the contrary from Realtors. Exactly where is that bottom we're supposed to have reached already?

Sounds Like a Plan?

2009-04-25T18:28:00.003-06:00

So the Draper City Council got all confused the other evening? Seems that the developer of the Windsor development on the Jordan River (a mix of multi- and single-family housing) tried to address some criticisms by the Planning Commission by changing its proposal in the middle of the hearing. By the time it was over, no one could keep straight which proposal they were talking about. Then there was the little problem of no one having had a chance to look at the new proposal. Finally the Council decided, in a 3-2 vote, to set the new proposal on for a new hearing.

This is the sort of thing that happens when you don't have a procedure that works. I have to say I miss not working with the Washington State system. If a council (city or county) is making a land use decision that is jurisdiction-wide (such as adopting a new use for a particular type of zone or amending street standards), it is acting legislatively. It may be lobbied, it can amend the proposal at will (not quite, but close enough for this discussion), and it doesn't have to make a record of why it did what it did. If there is a site-specific application, though (someone wants a rezone or conditional use permit on a particular parcel), the council is acting quasi-judicially and has to act like a court. It has to make a formal record and base its decision on that record, and lobbying is right out.

That's where the staff and planning commission come in. They make a lot of the direct contacts and build the record so the council has some insulation. And if the applicant wants to change the proposal, it's back to the staff and commission to make a new record.

I've found that it works. It certainly keeps applicants from switching horses in midstream, leaving councils wandering around in a fog. They don't need any help with that.

Speaking of the Rule of Law

2009-04-24T17:47:00.001-06:00

Magna is a peculiar institution. For decades it has been run by two entities: the Town Council and the Community Council. If you wanted to do something that required a land use decision, you needed the approval of both.

That's the problem. While state law gives such authority to the Town Council, it gives no such authority to the Community Council. The Community Council is simply a private entity that has been allowed to wield authority as if it were public.

I will readily admit that the Community Council has done a lot of good things for Magna. That's not the point. Suppose you wanted to develop some property or build a facility for your business, and you were told you would have to get the approval of the local Chamber of Commerce or Lions Club or Shriners or American Legion Auxiliary or whatever. A group that can meet and decide in private. Or not meet at all; a few, key members could simply get together at a church potluck and decide the fate of your proposal.

Why should any private group have that kind of power? It shouldn't. That's why such decisions need to be made by entities that are established and controlled by law. The laws are there to protect you, and if you don't believe it, imagine the fate of your business hanging on the decision of the local ladies' book club after they've finished discussing Twilight.

Lowry vs. Rule of Law

2009-04-24T17:03:00.001-06:00

As an attorney, I have a vested interest in the rule of law. As a human being, I do too. I believe that citizens are considerably better off if their lives are governed by a set of laws that remain set unless changed in certain, prescribed ways than they are if their lives are governed by the arbitrary edicts of a Great Leader.

Which is why Matt Lowry's take on the torture memos disturbs me. He wants to characterize them as a shining example of a nation ruled by laws taking the time, in the midst of a national security crisis, to debate the legality of its response. The memos may ultimately have been wrong, but the fact that we did not strike without first thinking through the legal issues means we remain a nation that respects the law.

There's a teeny-tiny problem with this argument, namely that the memos were condoning conduct the U.S. had tried and convicted people for after World War II, and the people "debating" the legal issues knew it. They also knew that the laws against "enhanced interrogation techniques" had become more stringent over the intervening decades, not more lax, so the only reason to reverse our previous position was political expediency. Which means those memos weren't part of a debate. They were pre-ordained to justify an already decided upon course of action. They were about as respectful of the rule of law as any of Hitler's or Stalin's show trials.

No, Mr. Lowry, the torture memos are not a shining example of our belief in the rule of law. They are damning evidence of our readiness to abandon it.

The Snowball at the Top

2009-02-24T08:38:00.003-07:00

Anybody remember what got this whole, economic avalanche going? Remember resets? You know, when adjustable-rate mortgages make their adjustments, and borrowers suddenly find they have to make real payments instead of the Monopoly money payments they've been making? It's why people blame this malaise on "sub-prime" borrowers (as opposed to blaming, say, the folks who convinced people to lend the money in the first place by telling them the borrowers were prime; but I digress).

We had a big pile of resets in 2007, and the wheels promptly fell off the wagon. Nobody's mentioning that Round 2 is coming up, though. Starting in April, there will be large numbers of resets that will run to the end of 2011. First the Prime ARMs take off, then the Agency and Option ARMs. Unlike Round 1, there are effectively no Sub-Primes in these resets. Some people think that makes it better. I think it makes things worse.

First, the chief problem Round 1 uncovered was that everything seemed to have been misclassified. Sub-Prime was everywhere, packaged as Prime, and nothing was worth what everyone had thought it was worth. Now we shall have the supposed "really good loans" resetting, and the question everyone should be asking is, "How many of them will prove to be garbage?" And when more gold turns to garbage, how much more confidence will drain out of the markets?

Second, when Round 1 happened, it was just the US. This time the rest of the world has already has already been sucked in. There's no way to get out and ship your investments to a safe haven.

Third, counter-measures have already been exhausted. With Round 1, we still had room to maneuver. Since then, capital markets have collapsed, rates have been slashed, debt has ballooned, and the US alone is hemorrhaging a half-million jobs per month.

Fasten your seatbelts, it's going to be a bumpy ride. And yes, I know she said "bumpy night" in the movie.

Learn from your Mistakes or Repeat Them

2009-02-23T11:06:00.003-07:00

I often find myself wondering if there's anyone driving this bus. First, in spite of completely failing to get Craig Mecham off the dime with his Sugar House pit, Salt Lake City has greenlighted Red Mountain Retail Group's mixed use redevelopment of the rest of that block and the one adjacent. I'm no fan of the Granite Furniture Warehouse, but we don't exactly need another chain-linked hole in the ground on that block. The City says this one is different because Red Mountain has all its financing in place. Yeah, right. Mecham said the same thing. So did General Growth Properties with the Cottonwood Mall. Show me the money.

Meanwhile, on the South End Sand Pile, R&B SunCrest has walked out of negotiations to take over the SunCrest development, claiming Draper is not acting in good faith. What that really means is that Draper, to the shock of everyone, is not rolling over, taking R&B and Zions Bank off the hook, and agreeing to stick the already thoroughly ripped off citizens of Draper with the entire bill to fix that mess. Bully for Draper. Unfortunately, Draper has done little if anything to change the ordinances and procedures that made SunCrest possible in the first place, so it continues to permit time bombs and will be crisis hopping for awhile.

As an aside, I have to wonder about Zions Bank. As a result of the SunCrest collapse, Zions ordered Draper to close its accounts and find another bank. That's the sort of "take your ball and go home" behavior one expects on a playground, not from a major financial player. It could be a blessing in disguise for Draper, though. Zions has taken some serious hits in the last year, from having to pull off-book garbage back onto its books to having to take over busted banks at the FDIC's "request" to seizing crap collateral like SunCrest. There's only so much that any business can absorb. Maybe it's good that Draper moves on.

It Isn't Just a Residential Crisis

2009-02-02T07:46:00.004-07:00

There's been a lot of noise about the housing market, bad mortgages, and banks failing as a result. People haven't been paying as much attention to the next real estate tsunami: commercial loans. The retail failures and dark spaces have been chipping away at commercial, though, and now it can't be ignored. The state seized commercial development lender MagnetBank Friday. If that isn't bad enough, the FDIC is having to eat this one because it can't find a buyer. What does that mean? Game over. In spite of the bailout money, no other bank could be convinced to buy in. The commerical picture is that grim. And what does that say about the effect the downtown mall and office buildings will have on the market? Or the odds of completing Cottonwood, Valley Fair, Sugarhouse, or the downtown Ogden projects? Or of filling the growing collection empty, faux-Tuscan commercial buildings that have sprouted up everywhere? There will be blood.

Short Circuit City

2009-01-16T11:59:00.004-07:00

Circuit City isn't closing just a few stores; it's closing them all. It announced today that its efforts to reorganize/sell the company have failed, and it's going to liquidate. 30,000 jobs gone. 567 more dark anchors in strip and regional malls. Well, Best Buy must be happy. At least for now.

Mall Wars, Round II

2009-01-14T17:10:00.004-07:00

General Growth Properties is hating life. Not as much as Holladay when it ends up as the one responsible for the weed patch that used to be Cottonwood Mall, but it hates life. It's another business that's been accumulating debt for the last 15 or so years and now finds that the properties it acquired with that debt won't cover it. Now GGP is threatening to dive into bankruptcy. Given what's happening with mall tenants, I'd say that's more like a promise.

Look at the list of retailers that have shut down completely in the last year: Mervyn's, Linens 'n Things, Steve & Berry's (Wah. I bought my casuals there.), KB Toys, The Bombay, Sharper Image, Woolworths (not just a store, an institution), Harold's (another hole blown in Trolley Square). Add the selective closings such as Office Depot in Gateway and Murray and Sears in American Fork, and you're going beyond dark space to the kind of tomb-like quality that the downtown malls in Ogden and SLC had before they were torn down. And we're building more. The bloodbath cometh.

Bankruptcy Builds Up

2009-01-14T16:23:00.001-07:00

Bankruptcies went up 47% in Utah in 2008. That's still just half what they were before Congress granted the credit card industry its wish and locked the courthouse doors to most people, but given the new barriers for filing, it's a graphic representation of the dismal state of affairs. It doesn't promise to improve soon, either. Where the traditional cause of a bankruptcy filing used to be a specific event (divorce, job loss, hospital stay), it now seems to be systemic. Households and businesses alike have simply accumulated so much debt over time that it's crushing them. And the triggering element in that debt load is more frequently real estate, with debt service going through the roof and value going through the floor, be it personal residence or investment property.

And what if you're one of the millions being crushed. Bankruptcy is not the end of the line; it's a new beginning, at least if you get smart about your finances. I took a construction company into Chapter 11 bankruptcy (used for reorganizing businesses) in Fall 2007. Normally you have to file a plan in Chapter 11 explaining how you're going to reorganize and operate the company. We didn't need to get that far. We negotiated away a few problem debts, and were able to dismiss the case. The company emerged stronger, and today, in spite of the construction climate, the company is still making its way.

Happy Holidays?

2008-12-24T16:34:00.002-07:00

And so it is Christmas. And what have we done?

To any objective, ground-level observer (as opposed to the tower-dwelling elite still drinking the Friedman Twins' Kool-Aid), times is hard. Office Depot has axed two stores. Kennecott is set to whack a big chunk of the few remaining, living wage jobs around here. KB Toys finally filed for bankruptcy. Costco's profits are flat. General Growth Properties continues to teeter on the edge of bankruptcy, threatening to leave the Cottonwood Mall site as a huge hay field (which I suppose beats the sewer lagoon Mecham has left in Sugarhouse). R&B SunCrest has scrapped its plan to take over The Incredible Sliding Subdivision, leaving Draper once again holding the bag. Jobs are hemorrhaging in town-sized blocs. Big boxes and anchors are going dark. Even though we've torn half the malls in the valley down, the surviving half are barely surviving. The only reason Sportsman's Warehouse has any chance of making it is because a Canadian farmers' co-op wants to buy it and use it as a Merc for its members. And having leveraged itself to the moon to follow gas prices earlier this year, Flying J has now had to file bankruptcy.

How did it come to this? It boils down to a simple fact, folks: We bought a load of hooie. We bought that everyone could own a home. They can't (I don't own a home now, and I won't be buying one soon. If you're smart, you won't either.). We bought that financial experts could take large piles of garbage and make them squeaky clean by dividing them into smaller piles of garbage. How's that again? We bought that we didn't need to grow or make things any more; we could all sit in offices and generate paper and electrons all day, and that would be a sustainable economy. Yeah, right.

We bought and swallowed so much crap, we finally exploded. Just how surprising is it really that we now find ourselves standing here with our guts hanging out?

So what do we do next? So far I don't hear anyone in the halls of power even asking the right questions. So I'll start with this: We've dumped $3 trillion on saving the finance industry; we spent $3.8 trillion (in current dollars) to fight World War II. We fought WWII to save our country and way of life. What sort of country and way of life are we saving with our current spending?

SunCrest, Round 112

2008-11-04T22:56:00.002-07:00

The city and the proposed substitute developer for SunCrest, R&B SunCrest (a joint venture of Raddon Development and Ball Ventures), are in discussions about what to do with the Mess on the Hill. The sticking point of course is who gets to fix the roads, which each side pointing the finger at the other. Draper is talking tough, but everybody knows its foundation is about as solid as those roads up there. Draper's threat postures are ultimately toothless because it needs a substitute developer a whole lot more than R&B needs to be that substitute. Developers can walk away, but in the end those roads are in Draper and have to be dealt with. Perhaps we should have a pool on how long it takes the city to cave in.

We Have a New President

2008-11-04T22:32:00.000-07:00

In the interest of full disclosure, I voted for Obama. However you may have voted, you have to acknowledge that this is historic. I remember when Blacks were beaten and killed for trying to vote. Now we've elected a Black president. If that isn't historic, nothing is.

Welcome Aboard the Real Estate Sag Wagon

2008-10-22T11:21:00.006-06:00

Everybody knows residential real estate is going through a rough patch. Mortgage applications are down to their lowest level since December 2000 (I guess people who've just seen their savings go "Poof" and whose jobs may do the same at any moment aren't interested in taking on 30-year obligations.). Now the other shoe is dropping: commercial real estate. Retail of course is a train wreck, with store after store going dark, and now Mervyn's announcing it will be liquidated by the end of the year. Now developers are shocked, shocked to find that office space is overbuilt (Tenants can play musical chairs downtown at will, and 222 and City Creek aren't even built yet. And Sandy and Cottonwood Heights are going great guns. Some people are just easily surprised.) (As an aside, Craig Mecham continues to use the downturn as an excuse for why there is still a hole in Sugarhouse. Odd thing is, though, he claims he's going forward with the retail space and is just putting the condos on the back burner. And Frank Gray, SLC'c community development director, is buying it and giving him more time to come into compliance. Who says there's only one born every minute?). The real estate market is a mess, it's getting messier, and it isn't suddenly going to pull out of this power dive any time soon. Every fundamental (supply, demand, financing) is bad, and if you think the MOAB(Mother Of All Bailouts) is a magic wand, you need to sit down with a nice, big cuppa joe and wake up.

"Mr. Mecham, Fill Up This Hole"

2008-10-09T08:40:00.004-06:00

Well, everyone's least favorite swimming hole in the making, the Mecham pit in Sugar House is back in the news. The City wants Mecham to fill that hole by Winter. Mecham's first line of defense is that he's being singled out when there are other projects out there that are out of compliance. His second line is that he's finding financing harder to get than he expected.

First, I can't think of a project out there that's as big a mess in as bad a location as Mecham's. It's prime real estate that two years ago was one of our prime, independent shopping districts, and it's been nothing but a chain link fence and a hole in the ground for months, including this entire construction season. So, no, he isn't being singled out. Even if he were being singled out, his argument is about like telling the cop who pulls you over for speeding, "Hey, you can't ticket me. Other people are speeding too." Good luck with that.

Second, financing is always a gamble on projects like this. Mecham isn't Don Trump; he can't snap his fingers and make it rain money. Even Trump can't do that any more. This problem was completely foreseeable a year ago when he knocked the block down, and even before then when he evicted all his tenants. This isn't even the first time he's made this excuse. He said the same thing back when the City was imposing some frankly reasonable restrictions on his demolition permit.

Sorry Mr. Mecham, I can't sympathize. Either clean up your mess, or sell that property to someone who can.

The News from Sun Crest

2008-10-08T08:02:00.003-06:00

Just in time for Winter, things are heating up on the ridge. Raddon Brothers Construction and Ball Ventures are willing to buy the development from Zions Bank if Draper will assure them they can build if a geologist greenlights it. Small problem with that: several geologists have already redlighted it. So how is it all to be sorted out among the duelling geological experts? Pistols at dawn?

This assurance demand is exactly backward and is the reason this mess happened to begin with. Draper should be demanding assurances that the project can be completed. At the top of the list should be geologic feasibility. The developers need to prove that land can support further development (and ultimately that they can support it). As I've said for over 20 years, high-slope developments don't need geologist/geotech studies; they need backing in the form of geologist/geotech liability insurance being on the line. Or serious bonding. Either way, someone is putting skin in the game. Someone other than Draper taxpayers and homebuyers who thought they were getting a properly approved piece of real estate.

Coincidence?

2008-10-03T06:42:00.001-06:00

So Wachovia agrees to be taken over by Wells Fargo instead of Citi. And unlike Citi, Wells won't use FDIC assistance for the takeover (At least not yet. Watch for something down the road when all the dust has settled and it can slip under the radar.). And now Wachovia has put partial freezes on Commonfund's Short and Intermediate Term Funds.

How does all this tie together? 1) The FDIC can say, without needing Botox to maintain a straight face, "See, the system works. We aren't insolvent. (Yet.);" 2) Instead of three banks (JP Morgan Chase, Citigroup, and Bank of America) holding nearly one third of the deposits in the US and Citi weighing in at over 11%, you will have four (Add Wells.) at nearly 40% and none over 10% (Appearance is everything when looking at market concentrations.); 3) The presidents of the 1,000 or so colleges and universities with investments in Commonfund will be calling Congress today screaming, "Do something!"

All this just in time for the House revote on the bailout.

Coincidence?

Love That Country Living

2008-10-02T13:47:00.003-06:00

When I was prosecutor in rural Washington, one of our problems was suburbanites moving out to our corner of the sticks for the "country living," building their house on their 20-acre "ranch," and then incessantly bitching about the agricultural operations going on around them. The most common beef was that livestock was wandering through the yard and tearing up the carefully manicured bluegrass. I had one lady call me every day for two weeks screaming, "They're stepping on my Malibu lights!"

Jeff Hawn, CEO of Attachmate in Seattle, has found a solution for this at his "ranch" in Colorado: He invited some friends for a hunt and shot every head of livestock they found on the property. He's facing criminal charges, and I hope they throw the book at him.

Most of the Western US is open range. That means that livestock owners don't have to fence their animals in; you have to fence them out. So fence them out! If you want to move out to the country, show a little respect for the people who actually have to earn a living out there. Don't be like Hawn and build a house that cost more than the neighbor's herd and then expect everyone to accommodate you regardless of what the law says just because you're more important than all those hicks.

And They're Off

2008-09-10T16:09:00.003-06:00

My, the sleazier elements of the plaintiffs' bar didn't take long to follow Napolitano's advice. The first takings cases arising from The Fall of Fannie and Freddie (soon to be a major motion picture and a video game) have already been filed. Hope those guys have done their due diligence to support those claims. Yeah right. OK, I hope they have good malpractice insurance that covers court sanctions.

More on the Bailout

2008-09-09T07:30:00.003-06:00

Well, stocks took off like a rocket yesterday because the Feds have come to the rescue and will save us all from Fannie and Freddie. But before you join the latest round of irrational exuberance, you may want to consider a few things.

First, Andrew Napolitano, Fox's con law talking head, thinks the whole bailout is an unconstitutional taking of the shareholders' property and will be tossed in the courts. Given that Judge Wapner's..er..Napolitano's whole schtick is that the federal government can't flush without committing a taking, I'm inclined to take his analysis with a grain of salt. I suspect he's missing a crucial point, such as the terms of the GSEs' charters, which any shareholder's rights would be subject to. Nevertheless, some clever lawyers might latch onto this and throw sand in the gears, and the proposal doesn't need any more grinding mechanisms.

For example, major credit default swap players have concluded the bailout is a credit event triggering the swaps. So far there has been no unwinding because the government guaranteeing payments, so there are no losses. Yet. The guarantees are funded only through 2009, and the protection buyers may see this as the last stop to get off of this train. If that happens, watch out.

Don't forget as well that the bailout won't help vast areas of the market one bit. GMAC is probably spinning in and may file Chapter 11 tomorrow. Its stakeholders are in trouble and can't afford the drain.

We shall live in interesting times.

Not-So-Jolly Mt. Holly

2008-09-08T07:47:00.004-06:00

Things have ground to a complete halt for the big, pretentious Mt. Holly development in Beaver County. My that's a shock. How the bottom line on that ever penciled out is beyond me. Now Chad Johnson, one of the county commissioners who greenlighted the project, says he always had doubts about whether it was feasible. Here's the deal, Sparky. One of your jobs as a public official is to protect the public. That includes making sure there aren't a bunch of dead, half-finished developments in your jurisdiction. That means you need to make sure there is a way to get the development across the finish line before you approve it. Come look at Draper if you want to see the results of local government being asleep at the switch for 10-20 years.

It's Over

2008-09-08T07:00:00.003-06:00

No, not the End of the World, drama queens, but certainly the end of the American way of doing business. From the first colonists to now, the US economy has been based on the single-family home. Industry, energy, transportation, fiscal policy, everything was geared toward home ownership. That's what Fannie and Freddie were all about: keeping the cost of buying a home down. Now they're gone. They held half the home mortgages in the US, so there is simply no way this will not make it more difficult and more expensive to get a mortgage. Some pundits are claiming that the government takeover will ease the credit crunch and lower rates, but folks there's only so much debt Uncle Sam can absorb, and he's already up to his earlobes. Not all F&F paper will have to be covered, but a lot of it will be because they weren't exactly holding the best. And what happens when the FDIC come knocking (Silver States went down last week, and we're just getting started.)? Believe it or not, there is only so much to go around.

What happens now? Home ownership rates decline. Development capital shifts to rentals. At some point you'll see whole condo complexes convert to apartments.

Who wins? Who knows? The details are still fuzzy. F&F shareholders have one last chance to find suckers to sell to, so maybe they win. Bondholders have federal backing, for what that is ultimately worth. There are supposed sweeteners for home owners, but those are election year window dressing that will cause more trouble than they're worth.

I can tell you who loses, though: the US Taxpayer. I guarantee it.

I Really Want to Know

2008-08-27T16:22:00.004-06:00

What does everybody think about the Fannie and Freddie mess?

It Begins in Earnest

2008-08-27T16:07:00.003-06:00

Fannie Mae has halted trading after hours and has replaced three C-levels, including the CEO. I can't imagine Freddie won't have to do something similar soon. Then the government will either have to let them sink (political nitro, Congress won't do it) or take them over (MUCH more likely, but effectively doubling the national debt). Nothing good can come of this, unless you own a gold mine.

Woodside Homes BK

2008-08-26T15:14:00.003-06:00

It looks like time is up for Woodside. A number of its creditors have filed an involuntary petition in the Central District of California. Woodside can fight it, but how? I'll provide more as things develop.

Un-Development

2008-07-02T15:19:00.002-06:00

Well, as if Draper's problems with Suncrest going bankrupt with vast scads of infrastructure either incomplete or falling weren't bad enough (although Zions Bank, the principle creditor, looks like it's about to buy the project and complete it, though we'll see just how completed it gets), it also has a growing collection of unfinished houses people are walking away from. Draper is talking about an ordinance punishing walk-away owners and developers, but that's yet another example of too little too late. Draper (and several other communities) neds to get smart and start building the safeguards into the planning at the beginning of the project. We'll see if that ever happens or if we'll just have good-old-boy procedure forever.

Meanwhile, out on the West Bench, Salt Lake County wanted to practice that kind of planning, and Kennecott took its ball and went home. Kennecott has scrubbed its massive development on the West Bench, opting for a couple of smaller developments. It seems Kennecott wanted an upfront guarantee of permits for 200,000 houses. The County said, "No way, too many contingencies over too many years for us to sign off on the whole thing up front." Frankly, I think the County is right. There are a lot of things that can go wrong with a big project over time. Draper gave developers a free rein, and the results are not pretty. Taxpayers should not have to bail out developments, and governments should make sure that doesn't happen.

Recovery?

2008-05-17T15:04:00.003-06:00

For the last couple of days, the headlines have screamed that housing starts are up nationwide (Not here in Utah though. See my 15 May entry "Owee!".). You would think that means things are turning around, but headlines a great deceivers. If you actually read the articles, you find that single-family is still slumping. It's multi-family that's showing gains. In other words, investors and developers are betting that a substantial chunk of the population has now been squeezed back out of the single-family market and will remain out for a long time. If that looks like recovery to you....

Owee!

2008-05-15T08:37:00.002-06:00

Year-on-year foreclosures were up 65% in April. Even here in supposedly robust Utah the figure is 63.1%, and that doesn't include short sales, work outs, deeds in lieu, receiverships, and other "informal" procedures that are becoming more common. And the houses keep flooding the market.

But wait, there's "hope." The housing market inventory will contract some day because construction is grinding to a halt. Utah Business reports that Q1 2008 residential building permits showed a year-on-year decline of 58.2%, which manages to beat the Q4 2007 decline of 53.4%. Before these two, the worst quarter Utah ever had was the 50.1% drop in Q3 1987. There are some of us who still remember 1987. It was a bloodbath. You couldn't give away small rentals, condos, and townhomes, and whole subdivisions of new construction were foreclosed on and dumped on the market, effectively strangling the resale market. There was a billboard on I-15 that read, "Will the last person leaving Salt Lake please turn out the lights."

If that's the neighborhood we're moving into....

Sugar House Sour

2008-05-09T15:26:00.003-06:00

In the interest of full disclosure, my office was in these buildings until Mecham Investments booted me out so it could make its big hole in the ground. Nothing I'm reading in the paper this morning surprises me.

Craig Mecham (aka The Great Developer) has a hole in the ground that half of what's left of Sugar House could fall into, and apparently isn't going to do anything about it. At least the City is stepping up, threatening to take the performance bond and fill up the hole itself. I hope the bond covers the cost, but I'm thinking it might not.

Oh, and Mecham is hinting that, due to the downturn in the real estate market, he's having to rethink the project. Boy am I shocked. If he's just going to leave a mess there, I think the City really ought to step up, fill and landscape the hole, and use its status as a creditor to toss the project into bankruptcy, where it can be sold to someone with the wherewithal to finish it. Unless the City wants the center of Sugar House to be a full block of urban blight.

Fun with Fannie and Freddie

2008-05-09T14:46:00.003-06:00

As I wrote back on 27 March ("This is a good idea?"), Fannie Mae and Freddie Mac have had their capital requirements reduced so they can save the mortgage markets. They also had their limits increased dramatically so they may now acquire Alt-A size mortgages, even though Alt-A is shaping up to be a bigger meltdown than subprime. And even though Fannie and Freddie posted multibillion dollar Q1 losses. Guess what, folks, you're in the mortgage business, making the world safe for stupid mortgages. Your tax dollars at work.

Another Crystal Ball

2008-05-04T15:28:00.004-06:00

If you're trying to figure out trends in construction, I suggest you check out the American Institute of Architects' (AIA) Architecture Billings Index. It is what it says it is: a measure of the amount of work architects are doing. And it's a pretty good measure. Last July it was about 60; now it's about 40, the lowest since 9/11.

The only reason for architects not to be designing is that nobody's hiring them to. Which means no one's planning anything that needs designed. Which means the construction pipeline is cranking shut, and it will take major effort to reopen it.

Snake Eyes

2008-05-04T15:09:00.006-06:00

Meanwhile in Las Vegas, Toll Brothers, Lennar, and KB Home are all hating life due to their stakes in two massive and failing residential developments, Inspirada and Kyle Canyon Gateway. Inspirada is so bad off that, while it was planned for as many as 13,500 homes, it's sold 162 so far. The developers have defaulted on over 3/4 billion dollars of loans. So far.

And over on the commercial side, Deutsche Bank is foreclosing on the Cosmopolitan Resort Casino. Global Hyatt and Marathon Asset Management are negotiating to bail the property out in return for taking it over (They have little choice. They hold positions junior to DB and would be wiped out if the foreclosure went through.), and the project will probably be recapped, but all the players will take some serious hits.

Welcome to the wild, wild west. Yeehaw.

A Back Door Hit to Affordable Housing

2008-05-04T14:41:00.003-06:00

Let's face it, affordable housing is expensive. For developers and lenders, that is. The margin simply isn't there, so affordable housing wouldn't get built without incentives to give it a boost. The biggest boost has been tax credits and deductions. The problem is that credits are valuable only if there are taxes to credit against, and deductions valuable only if there are profits to deduct from. As you may have noticed, profits have been a little thin on the ground for developers and lenders lately. Consequently, they're abandoning affordable housing projects they only got into for the tax breaks. So not only has the credit crunch taken a significant percentage of the population out of the purchasing market, and not only are rents shooting up because of the sudden increase in demand, but the affordable housing in the pipeline is contracting. That means the affordable housing run-out from this downturn will be with us for several years at least.

Hey, maybe they can take the dark space in the malls and convert it to housing units.

WSJ Says Commercial Sector is AOK

2008-05-04T12:41:00.002-06:00

I was sifting through my horrific backlog of reading material and came across this Wall Street Journal article by Peter Grant. He writes that "experts agree everything's fine" in the commercial sector, including malls, hotels, and office space. Some belt-tightening, a bit of a downturn, but no overbuilding, everything will be weathered in short order.

I wonder if the hotel owners who have 40% vacancy rates because of sky-rocketing fuel prices would agree. I wonder if mall owners watching anchor after anchor go dark would agree. As for no overbuilding of office space, maybe not in Manhattan, but take a look everywhere else. Here in Salt Lake City, several new office towers are going in and office blocks are popping up in the suburbs like dandelions, from Ogden to Provo.

Yep, no worries in commercial real estate. If you want to keep believing the Wall Street Journal is an objective news source rather than a cheerleader, good luck with that.

Forecast for Next Winter: Cold

2008-05-04T10:55:00.003-06:00

One of the things that doesn't seem to be brought up much when discussing real estate (but that you, gentle reader, should factor in when looking at any real estate) is the cost of heating the place. Heating bills are rising beyond people's ability to pay even faster than mortgage payments. In the Spring of 2007, after the Winter cut-off moratoriums (imposed on utilities by those nasty regulators so we don't have an outbreak of people freezing to death in their homes) ended, 1.2 million households were disconnected. These were almost exclusively electric and natural gas houses, since propane and fuel oil aren't provided by regulated by utilities (As an aside, the local providers of propane and fuel oil aren't obligated to keep supplying those who can't pay, unlike the regulated utilities. Given that those two heating fuels have shot up 30-40% over the last year and are still rising, this part of the market is likely to turn into a slaughterhouse. Time to invest in companies that make space heaters and potbellied stoves.). Electricity and natural gas prices have been relatively stable (if you can call increases of less than 10% stable, which should give you some idea of the state of the energy market), but they won't stay that way.

Now is the time to come up with a plan to deal with next Winter, when prices will undoubtedly be worse. I'm afraid you're on your own on this because, if you were expecting any sort of a national policy that meaningfully addressed the problem, remember that this is an election year, and two of the three people with any chance of becoming the next president think it's a good idea to cut the gas tax for the Summer. So we shall limp into next Winter about like Napoleon and Hitler limped back from Moscow.

There will be blood.

As Phoenix Goes, So Goes SLC

2008-05-03T14:56:00.003-06:00

The local real estate pros keep saying that the worst is over, prosperity is just around the corner, gray skies are gonna clear up, etc. Of course the only way they make money is if people believe that, so such opinions are to be expected. Just remember that less than two years ago, the pros in Phoenix were pooh-poohing those of us who thought the whole mess was a bubble, and if you think the Phoenix market has held value since then, I expect the DEA to come knocking at your door any minute to see what you're using.

Prices Starting to Slip

2008-04-27T21:20:00.003-06:00

So the local media have discovered that real estate prices have gone flat in Salt Lake and Davis Counties and declined in Utah County. No surprise to anyone who bothers to watch, but since they're only looking at MLS numbers, the stats are a bit skewed. No foreclosures, no short sales, no deals in the ward parking lot, all of which are becoming more common. That explains why Draper shows a respectable increase even though every third house is for sale, prices on the bench are spinning in, and Suncrest is bankrupt. These are the same figures that were used to create all the celebrating about a 6% decline in inventory for Q1 without bothering to account for seasonal adjustments or sellers who gave up and pulled their homes off the market. Lies, damned lies, and statistics, folks.

It also doesn't account for a painful fact about this market. A flat market, even a slightly increasing market, is no better than a declining market for these sellers. They leveraged to the hilt with outrageous terms, expecting quick appreciation for a quick flip. It isn't happening, and they're sunk. Prices haven't really started slipping yet, but the market can't support this inventory.

A Tip of the Hat to the ABA

2008-04-27T21:12:00.000-06:00

The American Bar Association has decided to demonstrate some proactivity concerning the current lending mess. It has set up a site called Safeborrowing.com, providing a lot of consumer information about mortgages, student loans, credit cards, and auto financing. Check it out.

Building Permits at 20-year Low

2008-04-17T09:24:00.003-06:00

Or close to it. Building permits in March dropped to the lowest level since at least 1990. Builders have such a backlog, they're having to stop building to clear it out. Which really means they can't get new construction financing until they clear some of their old construction financing off the deck. Which really really means that their cash flow, the life blood of any business and especially construction, has come to a standstill. I think the Chapter 11s are just getting started.

Now I'm REALLY Concerned

2008-04-17T09:13:00.002-06:00

Wachovia, which has always been known as a conservative player, announced nearly $400 million in Q1 losses Monday and that it is trying to raise $7 billion through a stock sale. And the markets yawned. Folks, how bad is it when a player we never thought would get caught sideways in a speculation bust gets caught sideways in a speculation bust, and the markets just say, "Oh well, another one."

Suncrest Going Downhill

2008-04-14T07:08:00.003-06:00

Well, not physically. At least not yet. Financially is another matter. It has defaulted on $58 million in loans from Zions Bank, and on Friday it dived into Chapter 11. The developer is shopping the project, and Zions says it will continue to fund it (Little choice there. Unless the development is built out, it won't come close to securing the loans.), so the homeowners up there don't have to worry about those issues for now. They should worry, though, about the causes of the bankruptcy.

The recent real estate downturn had an impact on SunCrest, but it isn't what sank it. SunCrest is embroiled in a series of lawsuits arising from the fact that the whole thing is built on a sandpile. There's a reason there are sand and gravel pits all around Traverse Ridge (There's a fault line up at the east end, too, but I'm not going there right now.). But the project was greenlighted anyway, and the inevitable result was a pile of lawsuits over deteriorating streets, inadequate water retention and drainage, and whether the houses themselves will one day come slaloming down the hillside. Default and bankruptcy loomed from the start.

Over 20 years ago, as the houses went marching up the benches in the Avenues and Olympus and Canyon Coves, people talked blue-lining (setting an arbitrary "do not build" mark at a certain elevation). I told them not to bother because such restrictions always get tossed out in court. What was needed was an engineer putting his liability insurance behind the geological stability of a project. That and bonding would have stopped the riskier projects or at least provided funding for fixes. Wasn't done, though, and now the bench communities are finding that Yeats was right and things really do fall apart.

I seem to recall a parable about building your house on sand.

Meanwhile, Back in the Mortgage Mess

2008-04-11T08:07:00.002-06:00

Last week Salt Lake Credit Union announced it was merging into Mountain America Credit Union. This week the condition of SLCU's adjustable-rate residential construction loan portfolio came to light. In September SLCU reported that it had $0 in 2-6 month delinquencies; in December it reported $824,604. In September it reported $315,857 in less than 2 month delinquencies; in December it reported $22.6 million. Does anyone else see a problem here, especially with a lot more ARMs set to reset this year? SLCU's first quarter report is due in about a month. I think people need to be watching for it.

The Feds are "Helping" Again

2008-04-11T06:03:00.002-06:00

The local market is sitting on an 18-month backlog of houses, much of the country is far worse, and Congress and the White House propose to "fix" this by giving another $6 billion to homebuilders. What do you suppose they will do with that money? Build more houses, of course, thus further deflating the market. Let's not forget either that most of those large homebuilders had in-house mortgage shops that wrote those subprime and alt-A loans that fueled this mess, pocketing substantial profits in the process. Wow, let's reward bad behavior and exacerbate the problem in one shot. If the Feds wanted to throw money away, they could have paid homebuilders simply not to build until the market absorbed some of the inventory. Instead, we're getting what may be the worst possible response.

This is a good idea?

2008-03-27T22:58:00.002-06:00

According to the Wall Street Journal's real estate section, Fannie Mae and Freddie Mac are about to be unleashed. With the US Treasury's assistance, the Federal Housing Finance Board has cut the pair's capital requirements and told them to go buy mortgage-backed securities. The same mortgage-backed securities that no entity not backed by the US taxpayer will touch with a ten-foot pole. This is supposed to restore confidence in MBSIs. What it really does is allow a bunch of banking and investment houses to unload garbage and leave John Q. Taxpayer holding the bag.

Does anyone remember back to that dim and distant time 18 months ago when the capital requirements were raised? Fannie and Freddie, through a series of stupid maneuvers, were in trouble, overleveraged and threatening to founder. It would have required a bailout amounting to a serious pile of tax dollars. Instead, the regulators reined the pair in and increased their capital requirements to reduce leveraging.

That was then. Now, apparently, things are so bad that leveraging federal revenue (i.e. our taxes) is the least evil option. Frankly I find that hard to believe, simply because this looks too much like a straightforward bailout of the people who created this mess in the first place. If they can get Fannie and Freddie to buy their toilet paper for 50 cents on the dollar when its only worth 5, they make out like bandits and move on to their next publicly funded scam. If this be capitalism, Wall Street is definitely making the most of it.

It Keeps Spreading

2008-03-27T20:52:00.003-06:00

Until now the real estate bust had only been hitting us mortals. Those with the lifestyles of the rich and famous seemed to be unfazed.

And then this morning, the Trib reported about Promontory Ranch. Promontory Ranch is development near Park City consisting of two golf course and 200 luxury vacation homes. It is also in default to Credit Suisse to the tune of $288 million. And it has no way to repay it or even to manage or further develop the property. In other words it's holed below the waterline and going down fast.

Credit Suisse's response has been predictable. It has filed suit in Summit County seeking a appointment of a receiver to manage the property. If you have a claim against the developers or if you own property or a security interest in the development, you need to lawyer up. Now.

Whatever the "experts" may be saying, it looks like real estate may not have hit bottom yet.

People, people, people...

2008-03-27T20:25:00.003-06:00

...when are you going to realize that buying a house is not like buying a bunch of bananas?

Paul Rolly's latest column in the Trib tells of James Royle, who bought an Ivory Home in the Valley Fields Subdivision, apparently without reading the covenants, conditions & restrictions (CC&Rs). CC&Rs? Yes, those thick books of "thou shalts and shalt nots" that just about every developer records these days and that control just about everything you can and can't do in your new house. And that buyers routinely ignore until it's way too late.

According to the article, Mr. Royle had some construction defects that needed corrected, but it wasn't happening. His response was to put a protest sign in his window. The next thing he knew, he was getting a nastygram from Ivory's attorney informing him that he was violating the CC&Rs. Mr. Royle noted that Ivory had apparently not enforced the provision before that, but I guarantee that makes no difference, because there is a clause somewhere in those CC&Rs that reads something like, "Failure of the developer to enforce any provision shall not constitute a waiver of its right to enforce said provision."

When you buy a house, you have to live with the house, the neighbors, the local government, the homeowners' association, and the CC&Rs. Do yourselves a favor and hire somebody like me to help you review those stacks of documents they hand you. Believe me, you'll be held to them whether you understand them or not.

Rates of Sink

2008-03-25T17:26:00.002-06:00

Utah home sales have plunged, and apartment rents are rising as demand goes up. But the Pollyannas continue to find rays of sunshine. The latest "good news" is that Utah isn't sinking as fast as the rest of the country. I have some news: If the bow is under water, the mere fact that the stern is in the air doesn't mean you're poised for an America's Cup victory.

Gus Faucher of Moody's Economy.com opines that foreclosure rates aren't bad here and that Utah will avoid the recession. Remember that Moody's is one of those rating houses that kept telling us that all those bogus investments were just fine. I consider Mr. Faucher's analysis to be just as reliable. First, it depends on the cherished myth that Utah is still its own economic island, which it is not, not by a long shot. What happens with mortgages elsewhere will reach here. Second, it ignores the peculiarities about Utah's social and financial structures that do exist and that allow a substantial number of distressed properties, particularly in south Salt Lake County and north Utah County, to mask that distress (not to mention the alarming number of houses that aren't being foreclosed on because they're locked up in civil and criminal fraud investigations, but I digress).

Sorry folks, there isn't anything so "special" about Utah that market cycles skip over us, and the mere fact that we aren't as bad as Michigan or Florida can't be considered terribly good news. Unless you redefine "cold drizzle" as "sunshine."

Land Use Follies

2008-03-25T17:09:00.003-06:00

In the last session, the Legislature in its infinite wisdom passed SB53, restricting challenges to land use decisions. The Legislature itself isn't too clear about what it passed. Sen. Brent Goodfellow of West Valley claims it's just a clarifying amendment; noted land use attorney Jeff Owens of Strong & Hanni says, "Bollocks." I agree with Jeff. What the new law does is effectively freeze the public out of what ought to be a public decision-making process. The law was obviously written to preclude a public outcry such as delayed Walmart's Sandy Gravel Pit development from ever happening again. Given the power real estate developers have in the Legislature, SB53 should come as no surprise, but one may still fairly ask if it's a good idea. Given the power large landholders are permitted to exercise at public expense (currently being highlighted by the State's complicity in Kennecott's cover-up of the weakness of the retaining walls of its holding ponds), land use decisions need more sunshine and public participation, not less.

Ignore That Man Behind the Curtain

2008-01-30T09:23:00.000-07:00

Utah Business Magazine periodically has roundtables of leaders from a particular industry to discuss the issues facing that industry, to confirm with each other how great things are going, and to provide copy to fill white space in the magazine. This month it's banking leaders discussing subprime mortgages. They seem to think the subprime mess won't affect Utah much and may have already passed through. Of course there apparently wasn't anybody from Citigroup to talk about the 900 local jobs Citi is cutting due to its multi-billion dollar losses. And there apparently wasn't anyone there from Bank of America to explain how BOA intends to manage having to swallow Countrywide Financial in order to cover its own losses in that train wreck (Does anyone else remember First Security buying up American Savings & Loan? Is First Security still around?). And although Jeff Thredgold from Zions does most of the heavy lifting in the article, he is strangely silent about how Zions is going to handle having to pull Lockhart Financial back onto its books and how many other such booby traps are out there.

These guys aren't analysts. They're just the dance band on the Titanic.