Jon Lowder

If Mortgages Were Wine

Here's the first sentence from a Wall Street Journal article on the seemingly never-ending mortgage meltdown:

Mortgages issued in the first part of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated.

To paraphrase The Godfather: Just when we think we're out they pull us right back in.

If you're sitting on some cash you should be seeing some once-in-a-lifetime real estate deals in the next couple of years.

Guaranty This

Now is not the time to be in the guaranty business, especially here in the NC Piedmont.  First, Triad Guaranty said they were throwing in the towel and more recently posted a nasty loss for the second quarter, and now AIG's underwriter United Guaranty has declared a $564 million underwriting loss for the 2nd quarter of this year.  United also said that 4.9% of policies were over 60 days past due.

Oy.

links for 2008-07-23

• Given a Shovel, Americans Dig Deeper Into Debt - NYTimes.com
  NY Time has a series called The Debt Trap.  Sobering and depressing.
  (tags: economics)
• Dan Traveling
  Great local travel site by a couple from the Piedmont Triad.  Found via Esbee at http://lifeinforsyth.blogspot.com/
  (tags: travel piedmonttriad)
• YouTube - Dan Traveling Channel
  Dan Traveling's channel on YouTube.  Travel videos of Piedmont Triad couple.
  (tags: piedmonttriad travel web2.0)
• Viewfinder BLUES: Blasphemy on Ice
  Lenslinger ain't liking the product placement on a Vegas station's morning news program.
  (tags: media)
• Micro Persuasion: The iPhone is a Pandora's Box for Radio
  iPhone and other "smart" devices are going to usher in tough times for radio and Rubel explains why.  He makes a good point that radio acts as a discovery device for music, and with services like Pandora that's changing.
  (tags: music media)

Not a Good Time to Be in the Restaurant Biz

Two weeks ago I posted a rumor I'd heard about South by Southwest, closing its doors (I had a VERY reliable source) and that post was picked up by Smitty who confirmed that the restaurant had indeed closed.  Today I read in a post by Laura Giovanelli on the Journal's food blog that in addition to South by Southwest the Cotton Mill had also shut down. I never made it to the Cotton Mill, but based on Laura's opinion of it I'm truly sorry I missed it.

The restaurant business is brutal any time, but during tough economic times restaurants, particularly higher end restaurants, struggle even more. When money is tight the first place most people will cut their expenditures is eating out, and when you have the combination of higher food prices and higher gas prices like we have now a restaurateur has to work very hard to get people through the door.  As Laura says in her post:

Sometimes, I try to brush off all the economic gloom and doom. Maybe I’ve listening to too much NPR, I’ll think. But it’s been obvious for months now that local restaurants are struggling, particularly the higher end ones, the ones with white tablecloths and the like.

I'm fairly certain we're going to see quite a few more "white tablecloth" restaurants close their doors in the next year or two.  Of course others will eventually replace them, but that doesn't help the many owners who have worked so hard to build their businesses and develop a loyal fan base.  From a selfish point of view it also doesn't help the customers who lose their favorite dishes, or the places that house so many cherished memories like anniversary dinners, graduation celebrations, etc.

To end on a positive note I recommend that you check out the Journal's food blog Dishing it Out.   It's coauthored by Michael Hastings and Laura and they do a great job of keeping it fresh. Personally I think it's the paper's best blog now (sorry Ken).

links for 2008-07-16

• EdCone.com: Roubini the whiner
  Ed covers Roubini's coverage of our economic screwedness.  Big gulp.
  (tags: economics)

Headline Economic News

If you didn't already know that the current economy is blech, you could probably gather as much from the following two headlines that appeared yesterday:

1. Starbucks to Close 600 Stores
2. Family Dollar Posts Strong Earnings

It's amazing what that $4.00, lo-fat, no-whip, peppermint mocha will get you at a dollar store.  Of course that peppermint mocha could also get the latte set about 12 miles down the road in their not-quite-as-cool-as-they-once-were Lexus LX.  Choices, choices: premium coffee, a gallon of gas or a pack of clothes hangers + a jar of generic peanut butter + a can of Comet + a bag of six water pistols?

Behold the Power of Email

A couple of days ago I wrote about an email I'd received concerning the decision by the county to eliminate all but one position at the Tanglewood Tennis Center.  Well, lots of other people received that same email and forwarded it to others, and many in that larger universe of people decided to let the powers that be know that they thought it a bad decision.  That resulted in the following email hitting my inbox last night:

Hi Everyone~

 

Thank you just seems so small in comparison to the overwelming outcry of support that you have given to keep our Tanglewood Community Tennis Center Family intact and running as usual! I just received a phone call from Mr. Sanders-Pratt (Assistant County Manager) that they are going to leave me in my current position at Tanglewood Community Tennis Center! All of the programs that you know, love and support will continue through the season with the State Combo Tournament in November!

 

I have heard through grapevines that some are planning to attend Monday Night's Commissioner Meeting. You all have gone to such major lengths for us and I am so thankful to you all for that to be unnecessary now!

 

All of this could not have been acheived without this "Tennis Community Family"! Gordon and I cannot thank you enough! It has just been so overwelming and amazing to see so many people that came together as one big tennis team to win this match!

 

I do not know how far all of these emails have reached. I am sending this to the same ones that I sent to before in hopes that you will contact those that you have to help spread this great news!

 

Again, Gordon and I cannot believe the overwelming support everyone has shown for us! We will never forget all the friends we truely have in all of the tennis community!

 

~Gordon, Angie, Samantha and Ryan~

Looks like the lights will stay on for at least the near future.

Personally I don't think it was the "noise" alone that caused the county folks to reconsider their decision.  It might have enlightened them to the fact that more people use the tennis facilities than they thought, but that alone wouldn't have done it.  After all, there are lots of public courts in Forsyth County that require no full time staff and are available to all players.  I'm thinking that having multiple people point out the potential revenue lost from events like the BMW Combo is what tipped the scales and helped them realize that cutting a couple of positions would cost more than it would save.

Budget Cuts Hit Tanglewood

Those of you who live here in Forsyth County, NC probably have heard that the board of commissioners asked those working in the government to make cuts in order to keep from having to raise taxes.  Of course they claim that they're doing this in our tough economic times because it just ain't right to ask struggling citizens to pay more taxes, but if you believe that I have some swampland in Florida to sell you.  Whatever.  The cuts have to be made somewhere and at Tanglewood at least one of the cuts they are making is in the department that manages the tennis facility, pool and Mallard Lake.  Here's text from an email sent to the community of tennis players by one of the folks affected by the cuts:

Hi Everyone~

 

     First of all, let me start by saying how much all of you all have meant to Gordon and I at Tanglewood Community Tennis Center! I have been here for 16 years, Gordon 17 and Ryan 3 years. We have had the privilege to meet so many incredible people. Thank you for such an amazing experience! You all have taught me so much about myself including my strengths, my weaknesses and have helped me to gain the confidence I need to move forward from here. I will treasure this experience and the friendships I have made forever! It is with a heavy heart and much sadness that it looks like I will be leaving you all at Tanglewood Community Tennis Center.

 

     With that being said, I am not leaving Tanglewood Tennis by my own will. Tanglewood Community Tennis Center as you know it will no longer exist. I was told today that my job and Ryan's job is being eliminated as of June 30th. I have been offered a library position within the County as a way to not totally be out of a job. At this point I am considering all options and trying to move forward from here. This is especially hard for us with our budget numbers being better than ever. Our department, Tennis and Mallard Lake (Pool comes separate), is up a record 34% with the next highest being golf at 7%. We have also lowered expenses by $20,000.00. If we had been doing bad financially or had made some big mistakes along the road, then this elimination would not be as devastating as it is to us now. The County just said that it was due to budget cuts.

 

     So what does this mean for you? There are many things still to be sorted out since this all came to us today. You all have supported this facility all through the years and helped to make it the success that it is - thank you for that! We will still try to provide the services that you have come to love and expect but we will have to be creative with that considering we only will have one full time staff member and no part-time or seasonal help. With only Gordon left to manage on his own: tennis, pool and lake, the scope of our leagues, programs, tournaments and special events will more than likely no longer exist or will only be able to be offered on a limited basis. We are so sorry for this for you all have supported and grown these programs for so long. We are who we are because of you! We will finish up this session of the men's and women's league but will no longer be offering any new ones until we see what the realm of possibility will be.

 

     As for the USTA Mixed and Combo leagues, we will still have the USTA Mixed kick-off on June 13-15th weekend, but this will more than likely be our last "hoo-rah"! Matches will more than likely be played at Hanes Park and Visions. It appears we will not have the staff to cater for it at Tanglewood.

 

    We were suppose to have the BMW State Combo Tournament here again for a record 4th year! However, with the loss of my position at Tanglewood, at this point, I do not see how this will be possible. There was a good possibility of being awarded this tournament for even more years, but that doesn't seem likely now either. This tournament brings in 2000 players with $2 to $3 million being brought in to our community over one weekend through hotels, restaurants, etc. Thank you to all those who volunteered to make this event such a success for our community!

 

     In closing, Gordon, Ryan and myself THANK YOU for your support, friendships and believing in us as a team all these years. Gordon will still be at Tanglewood Community Tennis Center to try and carry on as best he can! We have put too much of our hearts, lives and total commitment into this facility to see it fail now! We are not asking you to do anything further, but if you wish to express your supporting thoughts, experiences and hopes that this decision can be reconsidered, below are contact email addresses for County Commissioners and phone numbers for the County Manager and the Assistant County Manager who are over us and ultimately made this unfortunate decision:

Well, the second to last paragraph is one that ought to interest folks.  Although the vast majority of folks in Forsyth don't play tennis we all have the opportunity to enjoy the park facilities.  The fact that Tanglewood is able to draw people from outside the community to spend money that in turn helps subsidize the park system we enjoy should be celebrated, not put in jeopardy.  Just as the wine festival last weekend drew 20,000 people to the park, the tennis tournaments that Tanglewood hosts draws  thousands of participants throughout the year, and they spend money while they're here.  Kind of crazy, huh?

Tourism dollars are a hot topic locally because of county commissioner Ted Kaplan's tiff with the Travel Development Authority (TDA).  I'm wondering how events like the BMW State Combo fit into that picture?  Does the TDA help the park system market their events to the outside world?  If not, is this what Kaplan is talking about when he says he wants to see more TDA funds spent on grants to organizations to be used to promote and host events like this?

This is but a small bit of the picture, one that I'm interested in because of my involvement with local tennis.  Is it the end of the world?  No, not at all.  But it does help us understand what budget cuts mean in the real world.  Maybe keeping taxes frozen at current rates and reducing county services is the right thing to do, but it almost certainly will mean hearing multiple stories like this one. Sure we're each saving some money on taxes, but we will also be losing services.  Most of you won't care about this particular service, but I can almost guarantee that there will be a service cut that you do care about.  That's the road our county leaders chose to take and it's up to us to decide if it's the right one.

More on the FDIC

A trusted source, someone who shall remain anonymous lest I kill his business by letting people know he's connected to me, sent me an email after reading yesterday's post on banking woes.  His email did not lighten my mood:

A little info on FDIC. They have about $1.28 on reserve for every $100 they insure. The last time they went broke was in 1992 during the S&L crisis which was R/E related (mostly commercial). Tax payers bailed out the system. Banks now pay higher fees into the system (but still not enough) and is a significant reason for lower CD rates and higher loan rates. Cycles tend to repeat. R/E's cycle is about 12 to15 years. Scary isn't it.

Scary enough that I'm thinking about stuffing my mattress.  It's kind of lumpy anyway, so what's the harm?

Da Banking Bidness

Fec linked to several stories related to potential bank failures in the US. This bit from the US News & World Report really caught my attention:

“It’s our view that regulators are expecting 100 to 200 banks to fail” over the next 12 to 24 months, says Jaret Seiberg, a research analyst for the Stanford Group. Seiberg expects those failures to occur predominantly in states like Ohio, Michigan, California, and Georgia—where the construction lending market, which includes residential real estate, is expected to weaken dramatically…

Washington Mutual lost $1.87 billion in the fourth quarter, hit by mortgage defaults, write-downs and a substantial increase in the amount it set aside for bad loans.

That got me to thinking about the FDIC.  My understanding is that it insures checking and savings accounts up to $100,000 per depositor and up to $250,000 per IRA account, so if these banks fail won't it be on the hook to insure all those accounts?  How much moolah are we talking here?

When I set my fingers to typing this post I was going to ask "How much of the taxpayers money is at risk here?" but upon doing a little reading I discovered that the FDIC is funded by insurance payments from the banking institutions themselves.  So unless something catastrophic happens then taxpayer dollars shouldn't be at risk right?  Something about this sounds spookily familiar.

Oh, yeah.  Right when I was getting out of college and beginning my life in the working world (that would be 1989) there was this little thing called the savings and loan crisis that I didn't really understand, but seemed to have all the real adults spooked.  It happened to coincide with a real estate bust and a fairly decent recession, and it resulted in the birth of this new institution called Resolution Trust CorporationFrom the Wikipedia entry on RTC comes this: that ended up employing lots of people in DC to do something really important: bailing out the S&Ls and the morons who broke them on the shoals of a booming-busting real estate market.

According to Joseph E. Stiglitz in his book, Towards a New Paradigm in Monetary Economics, page 243, the real reason behind the need of this company was to allow the United States government to subsidize the banking sector in a way that wasn't very transparent and therefore avoid the possible resistance. This is supported by the fact that the banks had better information related to the loans than the RTC.

So pardon me if I don't swallow whole the idea that taxpayer dollars may not come to the rescue of the current crop of morons who are breaking their banks on the shoals of the latest booming-busting real estate market.  Somehow the pinstripes always find a way to dump their problems on the denim crowd.

Update: Ed Cone links to an article about the feds getting ready to help out. From the article: The Federal Reserve, struggling to contain a crisis of confidence in credit markets, plans to lend up to $200 billion in exchange for mortgage-backed securities...it will hold auctions of Treasuries in exchange for debt including AAA rated mortgage securities sold by Fannie Mae, Freddie Mac and by banks.  Ed then says, "I've made some rotten investments in my lifetime, it would be nice if someone would swap me some Treasuries for them. "

That didn't take long.