Ten Years-Is It Really Different?

A new book by Reinhart and Rogoff, “This Time Is Different”, makes a well researched case that over hundreds of years, not much really changes no matter what the crisis. It is never really different. I believe in many ways we can say the same for the past decade, and what we see happening now.

Although many strongly believe that letting Lehman fail was a terrible mistake, I disagree. It was absolutely the right decision and was needed. Had Lehman been subsidized and carried on the backs of the taxpayers, so would we have had to do the same for Merrill and others in a series of one off patchwork bandages. It would not have worked in the end, and there would have been a massive political backlash far worse than what Obama and Barney Frank have wrought. TARP was also the right thing, in that it was needed to save the system as a whole, instead of a lot of piecemeal fixes which would have failed in the end. We absolutely would have had a complete catastrophe without it. The politicians now campaign against TARP, they love to say it was a bailout of the fat cats on Wall St. In fact it was a bailout of the Main St banking system as we see from the fact that the taxpayers have been fully repaid by the big banks at a profit, and it is the small banks that still can’t repay.

By letting Lehman go under, Paulson and Bernanke forced the whole world to finally deal with the reality of the massive bubble we all had created. I have no idea if they did let it go intentionally or not, but their decision to do so was heroic under incredible pressures. There is a massive political blame game going on now pointing at Wall St, the US financial markets, subprime, and those of us who played a role in the bubble. The reality is everyone is to blame, and we will do it all again in ten or twenty years. While the details will be different, the basic cycle will be the same.

I do not want to waste time rehashing that Barney Frank was mainly responsible to allow Fannie and Freddie to go into a death spiral, Wall St fed the insatiable greed of the entire world for fast profits, politicians from Sacramento to Athens thought there was no end to payoffs to unions and voters with more and more pensions and other programs, and millions of homebuyers who believed the fairy tale that being responsible about taking on debt was no longer an article of faith. As things have now unfolded, we see that everyone around the world was playing the game to its fullest. Borrow now, spend now, and happy dust will always get sprinkled on our heads. Paulson and Bernanke turned off the bubble machine and blew the whistle-intentionally or not is irrelevant.

When I see the Germans forcing Basel III to be deferred for years, Congress failing to deal with Fannie and Freddie, Obama and Pelosi trying to blame Wall St for everything, and now lawyers and courts stopping the foreclosure process over who signed the papers, I see that few people really learned anything. Now CMBS is back without the proper risk pricing it should have. Just as Reinhart and Rogoff proved, the more things change the more they stay the same. The politicians have not, and will not, do what is needed. They have no brains and no guts. The bankers still don’t really get it about how to underwrite and risk adjusted pricing, high frequency traders are destroying the stock markets with algorithms just the same as the math whizzes destroyed the capital markets with fictitious models, Fin Reg is a mix of good and terrible, and Obamacare will create the next black hole entitlement program. All Obama and Congress have really done is transfer the bubble of the private sector to the public sector with massive entitlement programs and subsidies to local and state governments and to unions. Congress and the EU have simply extended and pretended with taxpayer money, in the foolish fantasy that we will grow our way out of the mess, and they will keep getting reelected.

I have nothing to do with the Tea Party, but its very existence and its ability to successfully put forward candidates who are clearly totally unqualified, should tell you that we are really in trouble politically. When the likes of Rand Paul and O Donnell have a real shot at getting elected, and Sarah might be a candidate for president, it is time to look at what is happening and worry. There are no leaders in government, and this time is not different. We learned nothing in the past ten years, and we are failing as a nation to show the bold leadership the world needs. Obama is creating a future disaster with his deficits and weak foreign policy, and the Republicans have no answers that really change the fundamentals and no real leaders. The real conclusion is, humans are basically unable to really change, and we will do it all again. Make the best of it for yourself because nobody else is going to do anything to make your life better.

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Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.