I’ve been reading Michael Lewis’s book The Big Short: Inside the Doomsday Machine, about the people who found a way to make a load of money betting on the collapse of the subprime mortgage market. Over the past decade, I’ve often wished I’d had money to invest in a way to express my feeling that the residential real estate market in the past decade was a house of cards, but as the book points out, it wasn’t enough to merely have the money. The people Lewis profiles also had to figure out how to bet against the conventional wisdom; one of the guys he writes about actually invented the type of trade that the others used to make their billions. Either way, no millions for Darrel.
I can’t help but feeling that we’re going to see some similar stories coming out of the commercial real estate market. A report that came out last month from TARP Congressional Oversight Panel Chairwoman Elizabeth Warren predicting that half of all commercial mortgages would be be “underwater” by the end of this year has been getting some play this week.
From the report’s Executive Summary:
Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present ― underwater that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.
The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.
Presumably, the larger size and smaller quantity of commercial loans (as compared to residential loans) precluded the dive in lending standards that led to stories like the one Lewis recounts where a California crop picker making $14,000 a year got a loan for a $750,000 home, or the baby nurse of one of his profile subjects whose mortgage lenders convinced her to leverage a single townhouse purchase in Queens into five townhouses, but it would be a mistake to think that bankers, developers, and businesspeople are somehow smarter about money just because they have more of it. Someone, after all, lent the money to the crop picker and the baby nurse to buy the house, someone built the houses thinking they could sell them, and someone lent the builder money to build the houses they thought they could sell.
As Lewis elaborates, the initial act of lending the money to the home buyers isn’t where the real money was. It was the bond market — where mortgages were bundled into packages of several thousands and traded between investors and second and third-generation trade instruments were created that simultaneously magnified the volume and obscured the risk of the original mortgages — that was the scene of the real crime. And after reading Lewis’s book, I can’t help but suspect that, while I still don’t have the money to do any investing, that there are probably collateralized debt obligations and credit default swaps aplenty to be heard of coming from commercial mortgages.
Barbara saw this Kohler ad by San Francisco photographer Mark Holthusen and was struck by the odd juxtaposition of elegant woman and toilet. My immediate reaction was: Isn’t that Portland’s Union Station tower Photoshopped into the background? And isn’t a $4,400 toilet with “integrated bowl lighting” an appropriate item to be named the Fountainhead and sold by an idealized version of Ayn Rand?
HISTORICAL NOTE: Almost exactly 20 years ago, Barbara was the one who unmasked the use of Barbur Boulevard’s Capitol Hill Motel in a photo illustration accompanying a SPY Magazine article about philandering congressmen.
Today is the 15th anniversary of the day I registered my first domain: moshplant.com, which was the kickoff to my career (such as it was or is) as a freelance Director and Flash programmer. I don’t remember picking St. Patrick’s Day for any reason, in fact it wasn’t until I started marking the date on my site after about ten years that I even noticed that it was March 17.
The original moshplant.com ran on a Mac Quadra 630 with an external 200MB hard drive, using StarNine’s WebSTAR suite of server tools, which included a web and mail server. One of the truly cool things about WebSTAR’s web server was the ability to watch the access logs in real time; I felt it gave me a very ground-level view of how things worked.
The whole thing was connected to the Internet via a dedicated phone line with a 14.4 modem connection. I had faster modems, of course, but for those of you made fat and lazy by the inexpensive high-speed access we’ve come to know and love, getting a static IP address even with a slow data rate wasn’t cheap in those early days.
Fifteen years is a long time. Some days it seems even longer. Apropos of nothing, one of my favorite songs:
The few surviving samurai
Survey the battlefield.
Count the arms,
The legs and heads,
And then divide by five.
Drenched in blood,
They move across the screen.
Do I need
Or do you
See the one I mean?
The one in back,
The way he acts,
Is he reminding you of anyone we know?
Isn’t he so
Like certain people I could name?
Halfway through the 30 minutes
Halfway ’round the world.
Here’s the story of
The genocidal overlord.
In her palace
With her epaulettes
Watch her little gestures
As she lights her cigarette.
Look at her you
Must see it too
Is she reminding you of anyone we know?
Isn’t she so
Like certain people I could name?
Disembodied and detached
A voice describes the scene
As a lizard
Stalks a helpless
Creature on TV.
Eyes with no expression
Watch the unsuspecting prey.
Who is it like?
Doesn’t it strike
You as the very image of someone we know?
Isn’t it so
Like certain people,
How could anybody
Miss the obvious
And the uncanny
And the clear resemblance?
Isn’t it just
Like certain people I could name?
They Might Be Giants, “Certain People I Could Name”, They Got Lost
It must just kill some people to have seen the picture of Dennis Kucinich getting off of Air Force One yesterday. He’s theDFH the people who claim they’re DFHs can’t stand. A post-1972 McGovern of his era, in neat, pocket size. If you’re the slightest bit insecure about your own liberalism, there’s no way you can have Dennis Kucinich around, because he just reeks of libcooties.
The last copy of Director I upgraded to was MX 2004 (aka “Director 10”). I haven’t had any Director projects since I was laid off from Reality Engineering nearly three years ago, and the only Director-related project I’ve had was a prototype for an online (Flash) update of a 1994 Director product. MX 2004 wasn’t much use there; I had to switch into Classic OS 9 mode and run Director 6 just to open the DIR files. My role in that project came to an end in February 2008. Upgrading hasn’t exactly been a priority.
Most recently, as I’ve been working on a poker-related iPhone app, I wrote a poker hand evaluator in Lingo that I used to generate statistics on 500,000 hands for 2-12 players and output the results out as an XML file. Even my old dual 1GHz G4 desktop computer can evaluate 1,000 12-handed hands of poker in less than 4 seconds. You’d think that a faster processor, say one of them Intel thingies, really push through the numbers. My 2GHz Intel Core 2 Duo laptop runs Apple’s Snow Leopard OS 10.6, however, and Director MX 2004 won’t run on it. I still do a lot of my work on my desktop (what with the never having to leave the house for work) but it’s irritating not to be able to whip up something in Director when I want to.
I’m trying Parallels out to run Windows on the laptop, maybe I’ll see about setting up my Windows copy of Director there.
Twenty years ago today I was taking a short leave from my job at Powell’s Books (where I was the desktop publishing guy doing the maps, signage, and ad design) to finish my undergraduate thesis at Reed College. I’d been working full-time at Powell’s and additionally putting in some extra hours in a variety of capacities on campus since I’d returned to school in 1987: first as a “t-watcher” in the computer (terminal) labs, doing book returns for the bookstore, and — on this particular day — working on the Reed News weekly in the school’s Publications Office.
Despite the fact that our jobs at Powell’s paid very, very little, I’d gotten antsy about finding a house to buy at the beginning of my thesis year. The rental Barbara and I (and her sister Lori, and our cats, and Lori’s cats, and Lori’s dogs) had been living in was up for sale, and although it had been on the market without result several times before (one time, Barbara’s landlady had told her she’d accept a used couch as down payment if she wanted to buy the place), real estate in Portland was starting to pick up from the late-’80s doledrums of the Reagan/Bush years and I was worried that we’d be caught short having our home sold out from under us without any place to go while I was trying to finally graduate from college. So we started searching in the winter of 1989/1990.
We started working — if you can call it that — with a real estate agent who we didn’t realize until a few years later had been a high school classmate of Barbara’s. She was useless, steering us toward houses far outside the area we were hoping to buy into (i.e. somewhere near the Sunnyside neighborhood between Hawthorne and Laurelhurst where we were living). A couple of times we’d met with her and toured a place and given her the go-ahead to make an offer only to find out that the house had closed before we’d even set foot inside. In at least one case, that turned out not to be so bad, as the house next door to the one we tried to make an offer on ended up on the cover of Willamette Week as a notorious drug house the cops hadn’t been able to shut down for years. But we didn’t know that at the time, and it was stressful going through the process over and over, particularly as Barbara was having to cobble together the financing from our rather shaky budgetary situation.
We were forced to take the initiative ourselves, looking for signs in the neighborhood, checking out listings, looking at houses ourselves. So it was on a Wednesday morning as I got settled into my temporary desk in Eliot Hall that I made a quick scan through the Oregonian’s real estate classified section.
It was a very different market in Portland at that time. Prices were far lower, but so were the number of listings. Given the changes newspaper classified advertising has gone through over the past two decades, strict comparisons are difficult, but the Wednesday paper of March 14, 1990 had a grand total of two home listings in the West Portland section. The section for Southeast Portland had eleven, several of which were pitched as “good income producers” or duplexes meant to be “owner-occupied.” Then there was this:
Walk to Laurelhurst Park, FHA appriased [sic], one owner over 48 years, 2 story, 4bdrm, basement w/extra toilet, storms, lrg formal dining rm, big kit & nook w/ceramic tile & bath w/tub and tile, shower, gar & more. Priced below FHA appraisal for quick sale.
The rental house we lived in was itself just four blocks from Laurelhurst Park (closer than most of the homes in the Laurelhurst neighborhood, in fact). The price was in the lower range for the neighborhood, meaning it was almost within our reach if you looked at our finances with rose-colored glasses. I got on the phone with the realtor immediately to find out the address — it was only three blocks from our rental — and since I was going to be working or in class until the afternoon, Barbara called Lori at home to get her to take a look at the outside. She said it looked OK to her.
I arranged to meet the owner that afternoon. Frida Rasmussen was 80, had heart problems, and on doctor’s advice she was planning to move into an apartment. She’d been living in the house since 1942 — alone since her husband had died twenty-five years earlier — and while early on she’d added some things like the tile to the bathroom and kitchen, a lot of the subsequent work on the place was necessarily done on the cheap. But we fell in love with the place. Best of all, since we were neighborhood people, Frida knew us by sight, particularly Lori, who regularly walked through the area with her Sheltie, Rebecca, who was particularly distinctive because a horse kick had left her hind legs useless and she used a cart to get around for years. Barbara was smitten with the place when she saw it that evening. Despite the bad roof (how bad we weren’t to find out until the following year when Barbara and I replaced it ourselves), Frida’s extensive use of a bilious color called Monsoon Green for all trim and many other painted surfaces, asbestos shingle siding that was cracked and falling off in many spots, the dropped ceilings with acoustic tile, etc., the fact is that at the level of housing we were looking at, those were the norm for pretty much every house.
Our enthusiasm for the place may have been our saving grace. Barbara didn’t like the greenish-gold carpet in the living and dining rooms or the gray weave thing on the floor in the fourth “bedroom” (what we call The Situation Room, which has entrances to the stairs, the bathroom, the back hall, my office, and the living room) or the then-thirty-year-old gold wallpaper in the living room, but her love of the location and the house and her common decency kept her from making the mistake of the other potential buyers who walked through the house talking about how they’d rip out this or that thing Frida had spent her hard-earned money on. Our offer went in at $45,000, and Frida took it, despite her having to wait a bit longer for the deal to close.
It was a long road from March 14 to mid-June, when Barbara and Lori finally moved into the house. It took an FHA loan (at 11%) to get us in, and we had to make a number of temporary improvements to pass the inspection. The roof was an immediate issue, as Barbara found out when she went up to do some tarring on the bodged-together “gutters” and her butt went through some of the shingles. A basement window with dry rot was replaced with glass bricks. As it turned out, my concerns about having the rental sold out from under us were correct, and we ended up clearing the last of our stuff out of there in the afternoon following my graduation ceremony at Reed, which featured Oregon Symphony conductor James DePriest and a torrential rainfall. The funeral for my father’s step-father was the week before graduation. Barbara did the heavy lifting to get the financing taken care of, since the down payment on the house consisted mostly of the few thousand her mother had left Lori and Barbara when she’d died a year and a half before.
Frida needed the money from the sale before she could afford down payment on an apartment, and there were several weeks after we had to move out of the rental before the deal on the house closed. We and the menagerie needed someplace to stay. Frida liked us but hated cats and she had no obligation to let us move in before final closing (although she did let us move some stuff into the garage). Barbara’s father hates all animals and though he had the space in his house in southwest Portland, refused to let his daughters bring them. We ended up moving out to my grandmother Margaret’s farm in Gresham (she was away for a time after her husband died), putting the cats into a cat hotel we could ill-afford, but the neighbor who cut the front yard for my grandmother drove over the septic tank field with his tractor and all of the drains started backing up. Barbara’s friend Paula came through and let us stay with her for the duration. Oh, did I mention that before we could take possession of the house I left town for a seven-week summer program at New York University?
So, today’s not the 20th anniversary of the day we moved in. Barbara moved in on a different day than I did — I wasn’t back from New York City until July — but it is the day that we first saw our house as a potential home. It’s a day to celebrate a certain amount of luck; not to mention probably one of the best decisions I’m ever likely to make (i.e. “Despite the fact that we’re broke we have to buy a house now!”) because there’s probably no way we’d be able to afford to buy into this neighborhood today. In the twenty years we’ve been here, it’s gone from a neighborhood with skinheads, heroin addicts shooting up at the abandoned Foremost Dairy, and condemned houses across the street with squatters and guys peeing off the porch in the morning to a pretty uneventful middle-class community (albeit one with a methadone treatment center half a mile down the road).
Thanks on this anniversary to everyone who helped make our little home possible.
Barbara spotted this in the newspaper circulars a couple of months back — what with the early spring you may not need them now — but apparently this company has no problem advertising gloves “Lined With ‘Anti-Freeze’ Sherpa”. You’d think that they’d be ashamed to admit that the insulation component of their hand protectors came from the bodies of the indigenous people of the Himalayas, but apparently whatever parts of the Sherpas they’re using are really good insulation.
Tuesday night I was once again a substitute on Team Rum, Sodomy, & the Stumbling Drunks at the pub quiz at Shanahan’s in Vancouver, doing my part to bring them a first-place victory, which meant my cut of the winnings was slightly less than cost of my drinks and snacks and the gas to drive there and back, even in the smart car.
No idea how this happened (click on the picture to enlarge), and I’ve never seen it before, but when I went to pull this ice tray ouf of the freezer last night, there were two spikes of ice sticking out of the cubes at about a 45-degree angle, on either end of the tray, pointing in different directions. I kind of don’t want to empty the tray until I’ve figured out what happened.