2008 Financial Crisis

The Wall Street Journal's Dennis K. Berman interviews Columbia business professor Charles Calomiris about why the government's current frenzy of efforts to stabilize the economy could ultimately falter. It's got to do with all those still-bad (in many cases) mortgages backing up securities.

DJ: There’s this perception that we can “fix” the price of individual mortgages. But shouldn’t the price of homes find its natural equilibrium?
CC: The market price is not decreed by God. The market price is an outcome of a variety of things. Recapitalizing the banks is helpful for giving them breathing room, and for providing credit in the meantime. But it doesn’t resolve the problem. The problem is the completely opaque distribution of losses because no one knows how to value these mortgage losses. The way to solve the problem is from the bottom up.

Government solutions do have a role, according to Mr. Calomiris. These include acquiring mortgages on the cheap to create liquidity and facilitating refinancing for healthier mortgages:  read more »

State Comptroller Thomas DiNapoli's office has issued a predictably grim assessment of the city's securities industry going forward. Here's the take on job losses, which could rattle through real estate and beyond in 2009:

As of October 2008, the securities industry in New York City had contracted by 8.7 percent. A 20 percent reduction would translate into a loss of nearly 38,000 jobs in the securities industry. We expect to see additional losses, although on a smaller scale, in the banking, credit, and insurance sectors. In total, the financial services sector in New York City could lose as many as 48,000 jobs.

Here's the full report in PDF.

As part of Citi's $40 billion deal with the U.S. Treasury, the FDIC and the Federal Reserve, the government will guarantee the financial giant's loans and commitments backed by residential and commercail real estate assets.

From a Citi breakdown of the government deal: "Citi will issue an incremental $7 billion in preferred stock to the U.S. Treasury and the FDIC as payment for a government guarantee on $306 billion of securities, loans, and commitments backed by residential and commercial real estate and other assets..."

Congrats!

Recession or not, when Erin Lima makes the trip from Philadelphia to New York City, “shopping is inevitable.”

“Every time you come here you have to,” she said, while browsing the handbag section of Bergdorf Goodman on Saturday with her husband in tow. “You can’t help yourself.”

The Limas and another couple got “the best deal ever” on a weekend at the Embassy Suites Hotel in Battery Park City, she said: $250 a night on a deluxe suite overlooking the park, with a cook-to-order breakfast and free drinks during cocktail hour included in the rate. “Can you stand it?” Ms.  read more »

Hold on to your hats, ladies and gentlemen, Wall Street bonuses are headed for an epochal fall. According to estimates from the city Comptroller’s office provided to The Observer today, year-end bonuses will total $14.5 billion for 2008, an over 50 percent drop from 2007, when $28.9 billion was paid out to Wall Streeters.

Of course, the figures are merely an estimate for now, but the low projection jibes with the bleak year in finance, one that saw the collapse of the financial sector and the dissolution of two of the biggest investment houses: Bear Stearns and Lehman Brothers.  read more »

From the Wall Street Journal: "J.P. Morgan Chase & Co. began handing out pink slips to employees in its investment bank, becoming the latest Wall Street firm to slim its ranks amid a gloomy outlook for next year. It is yet another round of cuts at J.P. Morgan's investment bank, which cut about 5,000 jobs earlier this year following its acquisition of Bear Stearns Cos. A J.P. Morgan spokeswoman said the bank hadn't determined the number of job cuts in its investment bank, which has 30,000 employees."

So much for that narrative! Counter to the stories upon stories of an economy in freefall, people are still working; at least they are according to October jobs statistics released today by the New York State Department of Labor.

Unemployment actually fell, albeit marginally, in New York State, dropping from 5.6 percent in September to 5.5 percent in October, while it remained unchanged in New York City at 5.7 percent (the national unemployment rate was 6.1 percent). The point is, it’s not climbing, and that seems weird, considering all that’s happened in the past month and a half.  read more »

From The New York Times: "However dismal the outlook for Wall Street workers appeared at the end of the third quarter, the situation has gotten worse than most predictions. At the beginning of September, Moody’s Economy.com had predicted that 45,000 to 65,000 financial workers in the New York area would lose their jobs by the middle of 2010. Now Moody’s is predicting 70,000, even accounting for the fact that some workers would find new positions."

The original purpose of the federal bailout pitched to the public and passed by Congress in those heady days of October was to allow the government to buy up distressed mortgage-backed assets, do what they could to help homeowners and investors in trouble, and then eventually sell the securities to reap (it was hoped) a profit for the taxpayers footing the enormous bill.

No more.

Reports are trickling out (CNN here and the Journal here) that the new purpose of the bailout is to provide federal funds to any company in trouble that can prove it deals with consumer credit. That includes credit card companies (American Express wants taxpayer money now), and auto and student financial aid lenders.

In what is perhaps one of the most dissonant press releases Media Mob has gotten in a while, a press representative from Time Out New York is touting the magazine's Where Laid-Off Workers Go To Drink spread.

Asks the flack:

What happens when you show up at your gig at Radar only to find the magazine's folded? Or if Nick Denton unexpectedly boots you from your blogging duties? What would you do if your days at CosmoGIRL came to a screeching halt?

If you're one of the unfortunate hundreds who lost their media job this month, then the answer is simple: You drink.

 read more »

Bad news for News Corporation, owners of Fox News, The New York Post, The Wall Street Journal, HarperCollins, 20th Century Fox, and a number of other major media properties.

According to Bloomberg's Andy Fixmer:

News Corp., the media company controlled by Rupert Murdoch, plunged as much as 16 percent in New York trading after cutting its 2009 profit forecast because of shrinking ad sales at its Fox stations and newspapers.

News Corp. sank $1.08, or 11 percent, to $8.71 at 9:34 a.m. on the New York Stock Exchange after earlier dropping to $8.25. The Class A shares had lost 52 percent this year before today.  read more »

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According to two experts consulted by the Wall Street Journal, year-end bonuses for Wall Street employees will fall this winter between 20 and 50 percent from last year, when the big investment houses awarded $33.2 billion in bonuses. That would put the total payouts somewhere between $16.6 billion on the low end of the spectrum and $26.5 billion on the high end. Bonus cuts will vary depending on the job description, with bankers and traders in hard-hit branches like structured credit taking the hardest hit.  read more »

Leena Akhtar is fielding more questions about the Great Depression than ever.

As exhibits and archives manager at the Museum of American Finance, Ms. Akhtar curates the displays, such as frozen pork belly that illustrates "Commodities" or rococo cash registers that mesmerize the teenage girls. The mission of the Smithsonian-affiliated teaching museum is, in part, to educate the public about capitalism. But September's events presented the museum with a new challenge: Document the current financial turmoil.

Admissions are up roughly 10 percent since the summer, according to Linda Rapacki, the director of visitor services. (The museum closed last fall for a move; it reopened in its new location at 48 Wall Street in January.) Tour groups are booked almost solidly through the fall and winter.  read more »

Rocky Twyman, a Seventh Day Adventist who rallied hundreds of Americans to pray for lower fuel prices at gas stations across the country last spring and summer, camped in front of the New York Stock Exchange on Halloween for the inauguration of his latest movement: "Pray Down the Greed on Wall Street."

"This is just the beginning of our movement," Mr. Twyman said as a camera crew lingered impatiently for an interview. "We are going to do all we can to alert these Wall Street executives that God is watching them. God is over all of this. He is the one that can destroy them if they keep doing this.  read more »

Hedge funds were supposed to be the saviors of the higher-end Manhattan office market as the credit crunch and the financial crisis claimed Class A leasers like Lehman Brothers, Bear Stearns and Merrill Lynch, and generally contracted what had been a boom real estate sector.

Now, according to Real Estate Weekly, these saviors are starting to pull back. Reporter Daniel Geiger cites several hedge funds that are either shedding space, subleasing it, or edging toward one of the two. These include:  read more »

Bloomberg News reports today that Wall Street investment firms, even in the midst of the financial crisis, could dole out as much as $20 billion in year-end bonuses. Goldman Sachs, for instance, currently budgets an average of $210,300 for each employee, a 32 percent drop from 2007's average but still significant.

The real question now is what effects these bonuses will have on New York real estate in early 2009. Traditionally, the bonuses trickle down into everything from luxury condo sales to beefier broker commissions to retailers' abilities to expand. A solid bonus year--the last couple, 2006 and 2007, each saw bonus totals of over $33 billion (PDF)--generally means a solid succeeding year for local real estate (though the relationship is far from hard and fast, particularly when it comes to the apartment market).  read more »

Symptoms of the credit crunch in the Financial District became obvious over the summer, when commercial and residential vacancy rates rose and a slew of new luxury condos spilled onto the market as rentals. Now, signs offering occupants incentives like no brokers’ fees and one month’s free rent are as plentiful on the sidewalks as camera-toting tourists.

The Financial District has certainly become an apartment hunters’ market since Lehman Brothers officially folded just over five weeks ago, on Sept. 15. Elsewhere in real estate, however, the financial crisis' impact remains unclear.  read more »

Over the last few years, something like conventional wisdom cohered around northern Staten Island: New development and new arrivals would make it the New Williamsburg.

Art galleries, bars and cafés opened near the ferry to Manhattan. The first annual Rock the Harbor music festival took place last June. A graffiti artist scrawled "Williamsburg II" on construction fences. The New York Times a year ago dubbed the North Shore "Bohemia by the Bay." Condominium towers with city views sprouted along Bay Street Landing, luring Wall Streeters across the water. Creative types and Brooklyn refugees trickled in.

But in this market, can the gentrification continue? Although home sales are up annually by close to 30 percent in St.  read more »

In early September when Robert Thomson and Tina Gaudoin revealed The Wall Street Journal's luxury insert WSJ. at a lavish breakfast for reporters at the Morgan Library, Mr. Thomson, the paper's managing editor and editor in chief of Dow Jones & Company boasted:

'The eschatological angst that characterizes much of the newspaper industry does not define Dow Jones. You'll see when the next round of circulation figures are released just how robust, how rosy our sales are.'

Mr. Thomson had good reason to be confident that morning: His new magazine had an article about Alaska Governor Sarah Palin just days after she was tapped to be the Republican vice presidential nominee.  read more »

The Atlantic's Ta-Nehisi Coates points us towards an article by Rex W. Huppke in yesterday's Chicago Tribune in which a member of the Communist Party USA denounces Republican presidential nominee John McCain's assertion that his opponent's economic plan is tantamount to socialism.

Mr. Huppke quotes John Bachtell as saying:

'Red baiting is really the last refuge of scoundrels... It has nothing to do with the issues that are confronting the American people right now. It's just a big diversion.'

Mr. Huppke has a little too much fun cracking jokes about Mr. Bachtell and his comrades, but he's not the only one with reds on the brain this week.  read more »

The New York Post isn't the only local paper with egg—or Iranian caviar—on its face today.

The New York Times ran an unusual correction for an October 14th story by 'Itineraries' writer Paul Burnham-Finney headlined "Upgrading the Stress Levels."

According to the correction:

An article in the Itineraries pages last Tuesday reported about the increasing stress on business travelers, and cited the findings of 'Stress in America,' an annual survey of the American Psychological Association. That survey found that economic factors were the leading causes of stress levels in 2008, but it did not say, as the article did, that 'the crisis on Wall Street was the No. 1 cause of anxiety,' nor did participants in the survey say they felt most vulnerable to stress 'in the office and on a business trip.'  read more »

Hey, look who's back! America's old friend, Patio Man. In his New York Times column today, David Brooks offers "Patio Man Revisited," a little check-in with his archetypal (white) suburban everyman whom he introduced to readers in a 2002 two-part story in The Weekly Standard.

Back then—when President Bush's approval rating was at 63% and crude oil was at about $24.00 per barrel—Mr. Brooks wrote:

I don't know if you've ever noticed the expression of a man who is about to buy a first-class barbecue grill. He walks into a Home Depot or Lowe's or one of the other mega hardware complexes and his eyes are glistening with a faraway visionary zeal, like one of those old prophets gazing into the promised land.  read more »

The Wall Street Journal's Laura Landro drops by for a review of the Greenwich Hotel in Tribeca, co-owned by none other than Bobby De Niro. Ms. Landro seems rather impressed by it all ("We gave high marks to the comfy Dux bed, the marble bath with its Moroccan tile floors, dual-head shower... and short but deep soaking tub, and the room's large high-definition TV... Our higher-end room was spacious by the standards of many downtown hotels with rooms the size of closet") but questions whether the timing of its debut, through no fault of the hotel's, was a little off.

It opened in April, just after the Bear Stearns collapse and a few months before the financial calamity erupted next-door in the Financial District.

On a recent midweek evening amid the financial meltdown on Wall Street, things were a lot more sedate, with few guests in evidence. Now, with the threat of global recession, it may be tough to attract the foreign visitors and expense-account clientele that have made New York a boomtown for such high-end properties in recent years. The Greenwich's $6,500-a-night duplex suite and a still-unfinished 2,500-square-foot penthouse with a roof hot tub could be a tough sell.

At a moment when the market is crashing and we're still trying to make sense of why the Dow goes up 900 points one day and down 700 another, when The Washington Post, The New York Times and The Wall Street Journal cover the crisis on their front pages daily, and a once-in-a-lifetime story lands in your lap, is there a monthly magazine better positioned than Portfolio to break this story down?

The Condé Nast business magazine has been publishing for 18 months, and those rocky staffing issues have—for the most part—been put to bed.

So, now it's game time! Lehman Brothers went down a month ago, the story hasn't stopped for a second, and there has been plenty of time to flood the zone.  read more »

Eric Konigsberg has a lovely piece in today's New York Times about the 26-year-old author of Damn It Feels Good to Be a Banker, a recently published satirical handbook to the now-endangered species of young financiers who used to frolic around this city. Author Amit Chatwani tells Mr. Konigsberg that he and his publisher, Hyperion, expected the book to sell better, but that was before all of the circumstances. "I’m kind of hoping that people will look at it as a sort of historical document, a parody of a world that existed until basically a moment after it came out," Mr. Chatwani says.  read more »

On May 2, George Noia moved into a two-bedroom basement apartment on Long Island. His bedroom was small and windowless, and the kitchen held only a microwave and a hot plate. But of all the places he had seen, the one on Revilo Avenue in Shirley was the cheapest, at $130 a week.

Until he found out that his roommate was scamming him.

"When I heard that, I was pissed," Mr. Noia said. "I was absolutely angered by it. I'm paying more money for a smaller room?"

In September, Mr. Noia overheard his roommate chatting about their rent with one of the building's other tenants.  read more »

Could the, until recently, ever-skyrocketing housing market in New York City have blinded Wall Street to the turmoil already afflicting the rest of the nation?

Barbara Denham, chief economic for real estate brokerage Eastern Consolidated, explores that angle in the essay below. It's no excuse, of course, but it might help explain how so many ostensibly intelligent people resisted the evidence accumulating in the rest of the country that real estate assets were drastically over-valued.  read more »

The Washington Post has an amazing article today about employees at Indian call centers, who, thanks to their discussions with indebted Americans, are getting an unusually intimate look at the repercussions of the credit crisis on what John McCain and Barack Obama gratingly refer to as Main Street America.

According to reporter Emily Wax:  read more »

Sports are feeling the chill of the financial crisis, according to this morning's Wall Street Journal. That includes plans for the new Mets and Nets arenas in Queens and Brooklyn, respectively. Looks like their namesakes just beat the clock!

Within the past two years, Citigroup Inc. and Barclays PLC have signed deals to spend more than $300 million over the next 20 years to put their names on sports venues in New York City -- one of them under construction, the other on the drawing board.

Citigroup will lend its name to Citi Field, the new home of baseball's New York Mets. And the NBA's Nets hope to occupy the as-yet-unstarted Barclays Center arena in Brooklyn, N.Y.

Both banks, which have been pummeled by a freeze in the markets they depend on for funding, would be hard-pressed to justify such an expenditure today...

One of the inadvertent beneficiaries of the Wall Street meltdown may be the city’s mental health professionals. Many of them said their practices have either grown or stayed stable over the past year, as the economy worsened and the conditions that spawned Wall Street's meltdown coalesced.

They believe, grimly enough, their business will only boom as the bust reverberates.

"This is multi-level stress in that it is financial, political, [and] social, and rocks the foundations, or perhaps the myth, that this country rests upon," said addiction recovery specialist Bob Lynne, who managed the state of New Jersey's therapeutic response to the September 11 attacks.  read more »

"A French colleague who spends a lot of time in NYC just backed out of a condo deal." ["Mighty Euro Tumbles to 16-Month Low Against Mighty Dollar"]

Way back in April, Cortney and Robert Novogratz, who renovate and sell hip houses under the name Sixx Design (they wrote the book, or at least a book, on "downtown chic"), put 5 Centre Market Place on the market for $18 million. Yet, in 2004, they had bought the place for only $1.512 million, less than a 10th of their asking price. The bubble was such an ambitious time!

Things have changed. After a price cut to $15.5 million, the Corcoran listing left the market in August. The townhouse is back on this week, now asking $13.85 million. Buyers interested in five-floor homes with Belgium-made oak-and-steel staircases (or with basketball courts built under Swiss-made steel mesh domes) should be excited.

The euro tumbled to a 16-month low against the dollar on Friday, dropping to $1.3258, compared to a record high of $1.60 as recently as July. While this might be good news for New Yorkers tired of the tourist clog, the euro's slide could be particularly bad news for a Manhattan housing market that until recently relied on foreigners for up to one-third of its new-condo buyers.

If the Western Europeans (including the British, whose pound has also dropped against the dollar) find themselves more and more on parity with American spenders, will they still buy so much so nonchalantly? Just askin'.

Book retailers, including Borders and Barnes & Noble, are pumping up financial advice books, often displaying the titles in store windows and at key points around the selling floor. From the Wall Street Journal this morning:

"It's been a hot category since the crisis first hit," said Michael D'Agostini, [Borders'] business-book buyer. "We are reordering more in order to keep up with -- and get ahead of -- the demand."

Barnes & Noble Inc., the nation's largest book retailer, said it has sent a list of titles appropriate for the current crisis to its 796 store managers, and has suggested they set up displays where appropriate. A company spokeswoman said that sales of such titles are going up.

This demand for financial advice books comes on the heels of an ebb in consumer desire for books on how to strike it rich in the housing market.

Barclays Capital has fired Mark Walsh, the man in charge of Lehman Brothers' commercial real estate investments, along with nearly all the rest of Lehman's commercial-mortgage-backed securities team, according to the trade mag Commercial Mortgage Alert.

Mr. Walsh has often been described as the "man behind the curtain" who made Lehman Brothers loads of money during the heyday of the CMBS market, but also as a man who took far too many risks and ultimately played a significant role in Lehman's demise. Indeed, Mr. Walsh financed Tishman-Speyer's ill-conceived $22.2 billion acquisition of Archstone-Smith, a luxury apartment building portfolio that has since been devalued; and financed SunCal's $110.2 million purchase of a 2.25-acre plot of land in Southern California.  read more »

Mid-market brokerage Massey Knakal has cut its team of brokers from 63 to 46, according to The Real Deal:

"The latest round of cuts was last month. Compared to the start of the year, the number of agents in Brooklyn and Staten Island has dropped to 14 from 21; and Queens and Nassau has declined from 15 to eight, Massey said. Manhattan, the Bronx and Westchester has fallen by three to 24 brokers."

Paul Massey, CEO and co-founder of the brokerage, told the real estate monthly that the cutbacks had nothing whatsoever to do with the dramatically tanking economy--and the dramatic dip in the volume of investment sales.

"Everyone will think this is in reaction to economic externalities, but the planning for the growth in territory size has been going on all year," he told The Real Deal.

We are incredulous.  read more »

According to recent articles, the Fox Business Network (FBN) still lags far, far behind its competitors at CNBC in terms of the size of its audience.

But amid the current financial panic, FBN is hoping to win over some viewers by running a political-style attack-ad knocking the record of CNBC's Jim Cramer.

"Financially, these are crazy times," warns a scary voiceover in the ads. "The last thing you need is bad advice. The last thing you need is CNBC's Jim Cramer."

When Gib Veconi moved to Prospect Heights in 1991, he and his neighbors spent years renovating brownstones. They started with garden-level apartments, and finished each successive story with rental income earned from the ground-floor tenants.

"No one could imagine tearing down a historic building," he said. "It was a question of economics." They couldn't afford the demolition.

Mr. Veconi, the chairman of the Prospect Heights Neighborhood Development Council (PHNDC), will tell you how the block associations of the 1990s were made up of members who had lived in the area since the 1950s, and the newcomers were like him, just looking for more space to raise a family.  read more »

Didja hear the news? The Dow Jones industrial average just fell below 9,000. If it keeps sliding, young people in the U.S. might find themselves the new Generation X—you know, those early '90s coffeehouse denizens whom we were repeatedly told were "the first generation that may end up worse off than their parents."

Gen-X is clearly on the minds of the folks at Hulu.com, NBC Universal and News Corp's video site. How else to explain the prominent homepage placement given to Richard Linklater's ur-X 1991 movie Slacker?

In 1997, Time Magazine wondered:

[W]hat happened to those lazy, listless baby busters who supposedly typified the new generation? Beavis and Butt-head were their icons; Beck's Loser was their song ('Savin' all your food stamps and burnin' down the trailer park'); Richard Linklater's Slacker, with its Austin, Texas, deadbeats, was their movie.  read more »

Forget Charles Dickens. For America's retailers, it's looking more like a Charles Darwin Christmas.

The Journal's Miguel Bustillo and Ann Zimmerman go on to detail the dismal sales that retailers nationwide expect this holiday shopping season. Such low expectations spring from September sales reports: Sales at stores open at least a year dropped 12 percent annually at J.C. Penney and Dillard's, and 9.6 percent at Nordstrom. The nation's largest retailer, Wal-Mart, saw annual sales growth in September of just 2.4 percent, below expectations.

Chilly.