Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week.

…Jonathan Miller

For those who saw former Fed Chairman Alan Greenspan’s testimony before Congress on Thursday October 23rd it was almost a mea culpa but no cigar. When queried by Congressman Waxman as to why he did not intercede with regulations to prevent the banking world from continuing its underwriting and issuance of CMBS & CDO sub-prime bonds and their toxic derivative permutations Mr. Greenspan answered that he believed the market would prevail to correct abuses as Wall Street would act to protect its shareholders. Those of us who dealt with the investment banking community knew that it was really the year end bonus pool that governed Wall Street’s actions and not stockholder interests.

The failure of the Fed and the SEC to act in a situation absent loan underwriting standards coupled with off-balance sheet securitization where the underwriters and lenders had no “skin in the game” defied logic and economic reality much less common sense. You did not need a PhD in economics to understand that disaster was lurking around the corner which FEE SIMPLISTIC called attention to on several postings. It was all based on an underlying assumption that the market would be on a perpetual rise and values would escalate so why worry?

All of this pales against more astute commentary from my country weekend neighbor who is employed by a major equity buyout firm. As we were discussing the state of the real estate market this past July I commented on the Blackstone Group’s purchase of Sam Zell’s
Equity Office Properties portfolio back in early 2007 and how they immediately sold off groups of properties to other investors at substantial markups. FEE SIMPLISTIC (May 2007) noted it was like buying wholesale and selling at retail. One of the buyers at $7.25 billion for 8 midtown Manhattan buildings was Macklowe Properties who ended up having to surrender title because they could not sustain the debt service. My neighbor commented that the “smart money” guys that he worked for in the buyout firm always said, “when Sam Zell is selling you don’t want to be buying”.

So the question is: after all these years of listening to the former Fed chairman spout his inscrutable prognostications about the economy, the credit markets and interest rates should we have been listening and watching Sam Zell?

And the corollary is: will the recessionary cycle end when Sam Zell starts buying again?


  1. Edd Gillespie October 31, 2008 at 10:41 am

    “Those of us who dealt with the investment banking community knew that it was really the year end bonus pool that governed Wall Street’s actions and not stockholder interests.”

    The Wall Street most of us appraisers out here in the sticks deal with is filtered through mortgage brokers, corresponding banks, AMCs and Fannie Mae forms. We knew it , not the extent of it, but we knew it. How can we have found a FED chairman who believes the market in the money changing industry will ever right itself for the greater good? Not till the lions lay down with the lambs.

    Incidentally, and no surprise to us western hicks, the latest free market use of the bailout money is to boost shareholder dividends. No new loans or borower workouts. Why work and take risk when you can get it for free? And after all as Mozilo said, needy borrowers asking for workouts and adjustments is, well, just “disgusting.”

    Seems the administration in the true spirit of FREEdom and FREE markets is not tieing any of those messy regulatory strings on the $700B of consumer money and just gave it away. I guess that is to ensure our economy and democratic system of capitalism and protect it from creeping socialism.

    Then I heard the bailout includes the government buying preferred stock in the banks, so maybe those banks will use their part of the $700B to pay dividends to the government.

    Given the course this is taking, those Christmas bonuses on the Street will be just better than ever.

    So what is Sam Zell doing? Buying, selling, crying, laughing? I don’t know anybody around here who knows who the heck he is. In fact, I don’t think we have any reliable real estate bell-weathers of any kind. From time to time Chicken Little is quoted in the local rag though. Which leaves us out hwere depending mostly on our knowledge of the greedy side of human nature and our common sense to know what to do next.

    How’s that for an analysis of self interest? Greenspan should stop over on his next trip to the coast. Incidentally, I’d almost bet the shareholders were real happy with what was going on.

  2. marty October 31, 2008 at 3:22 pm

    Hollywood could not invent a script for what is going on in DC with the bailout & how the fat cats are still feeding at the trough with the pigs.They made Lehman swallow the hemlock or was it cyanide and then said we have to immunize the rest of the Wall St flock with mucho $$ so that they do not undergo massive coronaries that led to Lehman’s cardiac arrest. As for Greenspan stopping off on his next trip to the coast I think he only goes to Jackson Hole’s summer ashram with all his other “free marketeers”.

  3. Steve Higgins January 3, 2009 at 2:34 am

    The Greenspan “Scene” in front of Congress was just another act in a multi-leg theater presentation designed to keep people’s eyes off the ball. Disecting what the Fed should do or who to listen to is frankly what they want you to do instead of getting to the root of the problem. If you have not seen these two videos then you will be shocked to know the truth. But, like the character NEO in “The Matrix” if you watch these you may wonder, “Why oh why didn’t I take the Blue Pill?!”
    1) Debt = Money Link:

    (the link above shows it full size, but sometimes it cuts out halfway thru the video. If it does, you can continue it with the link below)(same video, just smaller size)

    2) Fed Scam, er, System

    Steve Higgins
    Boulder Mortgage and Real Estate Professional

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