Investment Guru Meredith Whitney has an article arguing that the banks need to sell off their assets:
America’s banks need to hold a yard sale
A clear lesson learnt from this credit crisis has been to sell and sell early. However, it appears as if US banks are setting out to make some of the same mistakes of the past 18 months all over again. In many instances, those mistakes determined who survived and who did not.
Throughout 2007 and 2008, when I asked managements why they were not more aggressive in disposing of assets, the common answer I received was that they believed current prices were too distressed and did not reflect the true underlying value. Unfortunately, the longer they waited, the less these assets were in fact worth. Such a strategy cost Merrill Lynch and Citigroup more than half of their per share capital. In the case of Lehman Brothers and Bear Stearns, capital all but vaporised. These are just some examples but in reality this applies to too many financial institutions.
Throughout 2008, hundreds of billions of dollars were raised to recapitalise US financial institutions, but this money simply went to plug holes created by holding on to assets with declining values. Until the fourth quarter, monies were raised from willing investors. However, beginning in the fourth quarter with troubled asset relief programme capital created to recapitalise these institutions, US taxpayers became the default investors.
Now, when the average taxpayer finds him or herself overextended, he or she is forced to backtrack and, in situations of duress, sell stuff (otherwise known as a yard sale). In these cases, selling a set of snow skis for $15 or a prized record collection for $10 is not desirable but is necessary. Why should the US taxpayer be forced to fund behaviour that he or she would never have the luxury of indulging in?
Citigroup provides a prime illustration to support this argument. Last Friday, Vikram Pandit, Citigroup’s chief executive, stated: “We are not in a rush to sell assets.” This comes from a company that has incurred more than $51bn (€39bn, £36bn) in writedowns and has called upon more than $45bn in Tarp money from the taxpayer. At a minimum, this seems like a company currently operating under a different rule book from that used by taxpayers. . . .
While it is never pleasant to sell one’s “crown jewels”, the strain of this credit crisis and the overextension of many bank balance sheets will require that they sell what they can and perhaps not what they would like. After all, that is what the average taxpayer would be forced to do.
I think that the US government should have a yard sale too, starting a multi-decade process of selling off public land, perhaps selling a tenth or a hundredth of a percent of holdings every year for a century.
After all, the federal government owns over half of five Western states and over 40% of nine states:
Nevada 84.5%
Alaska 69.1%
Utah 57.4%
Oregon 53.1%
Idaho 50.2%
Arizona 48.1%
California 45.3%
Wyoming 42.3%
New Mexico 41.8%
Colorado 36.6%
It’s time for America to start an annual yard sale of stuff for which the government has little use. This has the ancillary positive effect of reducing excessive government power over its citizens and resources. Does the government really need to own 45% of the state of California?
If they're willing to buy it....
As for California, on the other hand, I have a feeling I like the Angeles National Forest more than I would the Taco Bell National Forest.
And the Utah land we have to hold as a buffer against insurrection.
That would be good for me. I don't own much land. I might have bought more before, but I knew prices were inflated.
There's plenty they could sell.
Unfortunately, now that bailout money is flying around, it may be rational for them to hold onto distressed assets.
And maybe now would be a time not to liquidate real estate?
I'm just speaking from a personal perspective. I was thinking about moving (locally) for the past year or so, but figured that maybe, when local real estate prices dropped over 20%, maybe I ought to sit tight for a few years.
And David Kopel wants a pony, which he is more likely to get.
Privately owned timberlands, meanwhile, are increasingly gated off. The companies have their own legitimate reasons for doing so, but selling more of the public forests to those companies so they could be gated off would not increase practical liberty of the majority of citizens.
A friend's brother lives in Texas, where public land is scarce. He has to pay hefty fees to private ranch owners just for a chance to shoot a deer. How is he better off?
And these bad loans totalled what - many trillions (that's with a "t") dollars? Who would have had the wherewithal to buy them anyway except other banks?
The only possibility that might have made sense is if they could have sold them to the sheiks to get some of the money back that they've extorted from us for decades. Then they would have been the ones that would have had to sell distressed assets for which demand was down, i.e., oil, which they've overpriced artificially since 1972.
And I was hoping we could save the land for when the real freight trains, social security and government pensions, hit us head on in a couple decades. We'll need to have many tens of trillions (with a capital "T") of dollars to fund those liabilities because the government has already pissed away the tax revenues they were supposed to set aside in the ficticious "lockbox".
When it come to real estate, they don't-- along with most people. This happened in real estate downturn in the mid 1990s. I saw bank owned property just sit empty for years because it was over priced. I witnessed realtor's ignore their own advice and over price their own property. There is something about real estate that makes people irrational when it comes to pricing. I think it's the failure to understand the concept of opportunity cost, and cash flow discounting.
Yeah, man, what would a federal department want with Yosemite Valley anyway?
That's hilarious, and probably true!
But the average taxpayer hasn't been bribing politicians for years. Banks (and other businesses) have been 'contributing' to candidates for years; don't they have a right to expect payback now? Has Mr. Whitney no respect for the sanctity of a business contract?
On the other hand, why should my daughter be saddled with unnecessary public debt just so you and your friends can work out your unresolved aggression issues by smoking defenseless creatures?
Water? There are parts of the arid West that are literally, dry, and sometimes, the land doesn't work well for septic systems. But in much of the West, there is water. There isn't enough water or septic capacity to build a subdivision, but several homes on a square mile will work just fine.
I would love to see the rancher/environmentalist struggles over federal land resolved by putting those BLM lands up for sale. The ranchers and environmentalists can get into a bidding war over it. The environmentalists, of course, are much richer--but I suspect that many of them will decide that they can live with ranchers having some of it, if the alternative is to spend their wealth protecting Mother Earth, instead of using their control over Congress to achieve the same result for free.
I personally, would sell Central Park first. It might even be worth more than Wyoming :-)
There is no way the government can make good on these promises. We can't "grow our way" out of the debt. That leaves only one politically viable solution: massive inflation. It's politically impossible to renege on the promises. It's not possible to close the gap with taxes. What other solution is there?
I have no strong feeling about selling off some federal land, except that this would be a lousy time to do it.
As part of the bargain concerning the admission of Texas into the union, the State of Texas retained title to all land that wasn't privately owned. Otherwise we would have similar issues here.
Assuming I start acting as soon as the home payment is in default...
I have to give written notice (about one week for processing and service);
then post;
then title search (can be done at same time as posting and advertising);
then advertise (takes 6 weeks);
then get the sheriff to hold the auction (at least two weeks after the last ad runs);
then I have a choice 1) do nothing and wait for six months, or 2) hire a PI to sit on the house for a month to prepare an affidavit that the people have moved out (3/4 of the time they haven't and I have to wait the 6 months anyway)
then have a PI go by, if they are still there I have to file a 30 day notice to quit, then a court case after the 30 days, which takes at least 4 weeks to get a hearing.
Then I have to hire a company with a sheriff's badge to evict.
For those of you playing along at home, yes, it takes a year during which they are destroying the home and stripping out the copper.
The latest fun sport is waiting until the last week of the last step, and plugging the drains in the basement and smashing the pipes. The house usually has to be torn down.
Nick
Some wacko libertarian did the math, and figured that at prevailing rates and home-sized lots, the acreage alone could pay off the entire national debt.
And yet. The government lost money on the base closing.
Of course, no one can point out such as the ONLY authorization is for the feds to purchase land within state boundaries with the permission of the legislature thereof for the purpose of erecting needful buildings.
One might point to the lands as still being "territories" but then anyone living in those "territories" who voted in any election in the state wherein the "territory" is located committed a fradulent act by claiming to be a citizen of the state.
It was unconstitutional to hold on to those lands; it remains unconstitutional to keep hold of those lands.
Just another case of the fed acting outside the explicit authority under the Constitution.
And the metaphors of selling a record collection or a pair of skis for $10 don't make sense. I might sell my motorcycle for half its book value, but that's because half the book value is $1500, which will buy a lot of diapers and ramen noodles. $10 barely buys McDonalds, and I'll miss the skis when times inevitably get better.
If by "depress prices" you mean "finally bring values into line with real, underlying value instead of what these financial wizards desperately want it to be worth," then yes, you're right.
If you have a comment about spelling, typos, or format errors, please e-mail the poster directly rather than posting a comment.
Comment Policy: We reserve the right to edit or delete comments, and in extreme cases to ban commenters, at our discretion. Comments must be relevant and civil (and, especially, free of name-calling). We think of comment threads like dinner parties at our homes. If you make the party unpleasant for us or for others, we'd rather you went elsewhere. We're happy to see a wide range of viewpoints, but we want all of them to be expressed as politely as possible.
We realize that such a comment policy can never be evenly enforced, because we can't possibly monitor every comment equally well. Hundreds of comments are posted every day here, and we don't read them all. Those we read, we read with different degrees of attention, and in different moods. We try to be fair, but we make no promises.
And remember, it's a big Internet. If you think we were mistaken in removing your post (or, in extreme cases, in removing you) -- or if you prefer a more free-for-all approach -- there are surely plenty of ways you can still get your views out.