Why YOU want your interest rates to go up

Why YOU want your interest rates to go up

Throughout the 80’s and 90’s we had a cultural epiphany on television. There were shows on television that were well written and produced. The Cosby Show dealt with issues that faced the African American community at the time. Miami Vice glamourized Miami, but also exposed a growing drug trafficking culture. Married with Children showed the disillusion of the everyman in a satirized way. Then MTV had to go along and ruin it with the Real World (which ceased to be anything real after RW: San Francisco). MTV discovered it could create drama without a script, hire cast for a pittance if not for free, and decrease the production costs. After years and years of Big Brother, Survivor, the Kardashians, and the Real World, man cannot survive on reality TV alone. You would have never thought of saying the 80’s and 90’s were the good ol’ days.

There is something else that I really wish would come back from the 80’s. No, it’s not Dan Aykroyd or leggings. It’s interest rates. The American people as a whole have woken up to the economic reality of today. Living outside of your means is no longer feasible. People are saving more . The irony of it all is that interest rates on a variety of different savings accounts is minimal if in existence at all. That kind of action only seems to inspire frivolous spending and “chasing” yield with riskier investments. The party line from those advocating a low rate policy is, “We are trying to stimulate investment.” I think the appropriate retort would be, “ If the investment was going to come, it would be here already.” Another common defense is, “We need to bring lending rates down to support housing.” If somebody is going to buy a house, they are going to have 15% or 20% now anyways. The economy is changing and the hope should be that we are changing from a consumer economy to a production economy.

The Fed, with its low interest rate policy, has “put out the fire.” Lifting interest rates would follow the natural mental progression of investors and consumers alike who will say, “Okay, things are returning to normal.” Whether or not it’s actually true, or if it’s only the placebo effect – who cares, as long as the patient gets better and confidence is restored?

Twelve years into a new century, TV execs are taking some risks and putting quality back on TV – shows like LOST, Modern Family, 24, and The Office. I’m not sure what Jack Bauer or Michael Scott would do to fix the economy, but hopefully it wouldn’t be the same thing over and over. Well, okay… Michael might.

A lot of things have changed while I’ve been on hiatus. The Dallas Mavericks won the NBA championship; Gilad Shalit was released by Hamas for over 1,000 Palestinian prisoners. The Basque Separatist ETA declared an end to 43 year old hostilities, and the United States formally declared an end to the Iraq War.

In addition, I moved to Dallas, Texas to take on a new job as an analyst. I’ve also had a lot of time to think where I want to take the blog. I feel like those of you who read this are looking for an inherent objective take. That being said, I’m writing this to expound on some ideas rattling around in my head. Consequently, I may provide my direct takes a little more often. Lucky for all you out there, I’m not a mindless ideologue, so things will be even handed. Unless we are talking about beer, in which case Miller Light still sucks, and Coors Light is STILL above reproach.

I'm plan on producing one article a week, so as to formulate some interesting thoughts and keep content level high. I sincerely want all my readers to get their money’s worth, and since you pay nothing, well, you should always walk away with a smile on your face.

Since it’s a short week, let’s put a little something out there. Right now we are in the midst of the genesis of the 2012 political season. Mitt Romney just won the Iowa Caucus by eight votes over some guy who has a real issue with you marrying a donkey. I’m not sure if that speaks highly of Rick Santorum or poorly of Mitt, but whatever. In political circles, it seems we are having a referendum on who can make the future suck less for the U.S. One recurring theme I hear is, “ I want to make sure you can still succeed in this country” or “ The other guy will turn us into Europe with the government as the babysitter,” and my personal favorite, “I’m here not for myself, but for you and the opportunity to give your kids a better future.” Well, according to the Brookings Institute, that may not be true. Just a little food for thought till next week.

-Tyler Jackson

Where are the new Guitar Heroes?

The cigarette smoke slowly wafts above the heads of a few hundred teenagers in a shady bar off Beale Street in Memphis, TN. They are mesmerized by the hard blue's licks of the progenitor of Rock N Roll himself Chuck Berry. Your grandfather is one the in awe of Berry as he moves up and down the stage with his Gibson ES-335 and plays his way into Rock N Roll immortality. Chuck Berry Begot Clapton, Richards, Paige, and Hendrix. Men who seemed to have the ability of Berry, but on horse steroids. In the present day, some of the best guitarists of the present are slightly disappointing. One is some young punk named John Mayer and a guy in a knit cap named "the edge" who looks like a garbage man not a guitar hero. Needless to say it looks like we peaked musically.

Some would say our real estate has followed a similar arc. During the middle to late part of the 20th century, we had strong and steady growth in the United States. During the late 1990's and 2000's, our real estate industry started bulking up on the "juice". Easy money, bad loan standards, ridiculous home values . Now we've come down off that unsustainable high and are facing the hard facts. Things have changed a bit, and probably permanently. At the peak of the bubble there was nearly a 70 % home ownership rate. We will never be there again, and we probably wont even be within 200 basis points for a long time.

The problem with the recession is the idea that we will fill all the inventory and shadow inventory that is out there and it will be "allll good". There are millions of homes all over this country sitting vacant. With those homes, came millions of non performing loans and many more teething on the edge of that due to continuing tight economic times. The "high speed" among us in the industry and talking heads who actually know have figured it out. They've realized the "renting" class amongst us (the 20-34 year demographic) are running to apartments and are tepid about homeownership and not coming back for a long while. I have and many other have seen close relatives taking a beating of a lifetime on in their 401 k's and home values. The days of month after month of record home starts, easy to find equity, and generous mortgage officers is over.

Very pedestrian home starts, difficult financing, no sure things, and ever present threats of recession:we need to realize this is the "new normal" for residential and probably even office sectors--or, more eloquently put by one of my friends in the Marine Corps "Welcome to the Suck!"

I've realized this guy(yeah the guy eating the cell phone) may be the best guitarist of my generation and years to come. I'm not going to lie-- I still check out YouTube videos of zeppelin and The Stones... The good 'ol days indeed

-The Inside Associate

Why American Real Estate loves the Bachelorette

Who hasn't ever the dreaded words, "We need to talk?” You’re having dinner at a nondescript restaurant with bus boys bustling around, waiters taking orders, and then out of the blue you hear those dreaded words: "It's over, Tim.” Then two weeks later your old girlfriend is going out with the jackass nobody liked in high school. I've been watching a little more ABC lately, and that means I’m watching The Bachelorette. The darling of the show has fallen in love with the incorrigible asshole Bentley. Not only is he not the one for our lovable friend Ashley Hebert, it’s obvious he gets some sick kick out of seeing her cry. It seems like since he's left, all she does in every episode is go on dates and wax poetic about him.

The US Real Estate industry is in the same place. We got "done dirty" by loans with bad terms, very easy money, and imbecile regulators.As a result, we are mired in one of the worst real estate markets in decades. Now that we've been shocked back to reality, Congress is trying to put together sensible rules to keep us on the straight and narrow.

The largest hangup for the industry is the Qualified Residential Mortgages (QRM) rules. The QRM guidelines seem like the astute, conservative way to prevent further housing disaster. You know, kind of the safe "ivy league boyfriend." But, true to form, Ashley/people are clamoring for Bentley – the “bad guy,” the exciting, less restrictive mortgage options.


The worst thing is that there are tons of groups that want to get behind this move to lower the QRM standards. Legislators, the National Association of Realtors (NAR), the National Association of Home Builders (NAHB), and NA whatever else you want – just about anybody else who is about to have a big old bite taken out of their pie.

The harsh reality is that in the long run, the conservative Ivy League boyfriend is going to have to be hardworking, but will also ultimately enjoy prosperity.Going with the bad boy Bentley and all his easy lending ways seems to be a one way ticket to all of us living in a trailer with our parents.There are a lot of people with a lot invested in how these QRM rules take shape. The last time those with the most to gain ran amok on a sugar high, the rest of us were left to clean up the mess. Having a defined framework to create reasonable mortgages may be a positive development. Even if that means we have to stop dating guys named after cars, sporting bad hair cuts.

-The Inside Associate

This is New Orleans

After a nice dinner at Antoine's Restaurant nestled in the heart of the French Quarter, what is there to do? The obvious answer is to listen to one of the very persuasive doors nearby and come in for "just one drink.” All of a sudden that rum and coke turns into two rum and cokes, and then a Jager Bomb, and then two hurricanes. Then a drunken stumble into a dark part of the quarter gets you into a "situation" with some shady characters. The night ends as only a night in the French Quarter can: with you trading your cell phone and wallet for your freedom. This scenario sounds eerily like what has happened to our economy in the last 10 years, and to Real Estate in particular.

The thing we need to remember throughout the whole mess is "IT'S NOT THAT BAD!!" America has always had a "woe is me" look at everything. Take the Civil War, for example. We survived that, along with the Great Depression. Nazis? Check. Japan taking over the world in the 80's? Not so much. It’s true that the world is still very much on shaky ground. The Chinese are slowing down and dealing with inflation issues, in addition to cooking the books. The eurozone is extremely problematic with huge currency and sovereign debt issues. However, like the champ its proven to be, the U.S. remains one of the preeminent places in the world to invest.

The globe has become smaller, but it's still growing economically. The United States will be the nexus point for a growing East in India and China, developing South America in Brazil, and let’s not forget about Europe. Some could say that we could become like the United Arab Emirates in a sense. They have pursued policies that have fostered economic growth and development to create the playground of the near east. With sensible regulation and policy making, we too can be the nexus point of a globally integrated economy.

With the end of QE2 and the $8,000 housing tax credit over, we've hit the wall of economic reality. Having hit that "wall" we must sit in this "coma" and just wait. For a country that has little patience this may seem interminable, but it's more than likely our best medicine. Over the course of the next 18-24 months, there will be bargain hunters who are ready to pull the ripcord and parachute into the housing market. More attempts at artificial recovery are only going to delay an already painful process.

The devastation that was post-Katrina New Orleans did bear fruit. Many people left, but many people stayed and rebuilt. With substantial coordination and effort, NOLA now has newer, better schools and hospitals. The infrastructure has been rebuilt and is currently pursuing and attracting businesses. The French Quarter is still filled with great food, alcohol, and revelry. The United States, with some coordination, will once again be the place where wealth is made, products and innovations are devised, and where people can still buy their houses with white picket fences

A New Tradition

The US is a country full of traditions. The American tradition has always to been to throw off convention, lead, and blaze a new trail. One of these traditions is to incorporate new methods of doing things and make existing ideas ours. This dates all the way back to Plymouth Rock and the farming ways of Squanto and his friends. You can look at our Declaration of Independence and constitution and see us incorporating the European ideas on freedom and civil liberties into our own.

If you checked the news in the last few months (or years, for that matter) you've been hearing of the impending doom descending on the American economy. Based on our history of adaptation , and yet contrary to what many well-heeled people think, we should be actively searching for capital inflows from overseas. Over the last few years, the U.S. has been host to many "buying" trips by those from all over the world buying up real estate. The U.S. gov’t and the economically established should be encouraging active foreign direct investment on a much grander scale. There are millions and millions of dollars’ worth of industrial, retail, and office space ready to be bought up for pennies on the dollar. We should be working to responsibly rework the tax code to encourage investment.

In the larger view of the economy, many naysayers have been publicly reticent about taking foreign capital in American companies and brands. I believe unabashedly that this is a fallacy. Some of the most "American" brands in our country are owned by interests outside the U.S. A Beligian company owns Budweiser. Unilever from the Netherlands owns Vaseline and Ben N Jerry's. A German company owns Trader Joe's, and the list goes on and on.

From a global economics perspective, there's no good reason not to be chasing capital. If you’re living in Europe and are looking to safely invest your capital with more than a few commas involved, does investing in some place that uses the euro make sense? The Europeans cannot control the value of the euro or the credibility of those member countries using it. Similarly, if you’re well to do in China, wouldn't you want to put your money someplace where the rule of law matters? For other expanding and developing countries the U.S. maybe down, but isn't out, and it is certainly still a stable haven in which to invest.


This maybe anathema to those in this country who believe “America first” before all else. It's time to wake up; executives all over this country have been investing in foreign nations for decades to our detriment. We have the opportunity to swing the pendulum back our way and with a cheap dollar court industry all over the world. There are millions upon millions of square feet in retail, industrial, and office space available. We can either have overseas investors invest in REITS and other companies, or we can do the "American" thing and chase them down and give them their share of the American dream… and a white picket fence to go along with it.

-The Inside Associate

Stop the Foreclosure

It's another Tuesday afternoon, slightly overcast. A BMW 650I whizzes by a yellow cab in the financial district of a nondescript metropolitan city. A large man hops out of the cab and throws a Jackson at the cabbie. He heads up to the 16th floor of the high rise. The elevator opens and he heads to suite 316. As he walks in, the man sees pencil neck geeks furiously signing paperwork, flipping through pages and wildly signing more. The man who looks curiously like Arnold, but has the air of the famous lawman Robocop, raises his licensed firearm and yells in his strangely familiar Austrian accent, "STOP THE FOREEEEECLOSURRRRREEEEEE, ASSHOLE!"

No, this isn't the start of a huge action scene in the next blockbuster for Arnold Schwarzenegger. It's probably the day dream of millions of Americans who went through a quasi-legal foreclosure process.

In states all over the country, the investigations process is at different stages. Some are looking to assess penalties and fines, some are busy gathering facts, and, in some states, wrong doing hasn't yet been decided. For a quick rehash, thousands upon thousands of families in the last few years were unceremoniously kicked out of their homes. Many of these situations stemmed from buying more house than they could afford; others were from loans that had enticing teaser rates for a while that would be eventually unsustainable. These unfortunates were in some cases kicked out their homes without due process, or, in some more insidious cases, due process was executed with falsified loan documentation (aka the "Robo signings").

Currently, deals in some states are being negotiated to prevent prosecution and secure a financial settlement. Other states are being aggressive and actively pursuing the breach of public trust with the full force of the law.

In a majority of these situations, the homeowners – some naive and some not – were "shaken down" by the industry. The industry swindled the general public when they were buying homes, and again as they were kicked out of those same homes only to receive property back that was only worth pennies on the dollar and depressing the market further. Very productive indeed.

My hope is that the eyes of the public will be opened as a result of these investigations and possible prosecutions. When dealing with buying a home loan and the entire process associated with it, the people you are working with aren't your friends. They aren't " helping you"; they are business partners, hired hands. Like any good business partner, always keep an eye on them.

-The Inside Associate

P.S. The Inside Associate blog is now reaching over two hemispheres, a few major continents, and a few G-8 Countries. I would love to reach out to the readers in Europe and across the globe to provide feedback. Things you would like to see on the blog, questions you may have, or just general commentary. I'm always grateful for any insight. I'm exceedingly grateful for you giving us some run to your friends in the general public and the industry.

BMW, lending, Robo Signing, RoboCop, Schwarzenegger, zombie foreclosure