Sorry for the long pause folks...lots of reasons and obvious distractions...but like watching an exciting game waiting fo a pause in the action for a potty break, the non-stop coverage of the "bailout bill" and the effects on all the markets has been mesmerizing. But now that we have this bill, I feel that I can at least take that break to tell you what I see, before we take the next leg off course.
I saw a late night slice of the old movie Titanic and had many analogous dreams aided by too much old meritage. The movie seemed a flashback of these past years in our business. The Titanic was built during an insatiable desire to create the biggest most opulent cruise ship as a monument to the ego. The Titanic was thought to be "unsinkable" and "the ultimate in speed, size and comfort". Like our industry, it was believed nothing could go wrong - hubris was nowhere to be found. Most of us were happy to believe what we were told and trusted the more experienced men on the bridge. Sadly, those more experienced were sucked up in the same blindness of greed and arrogance but added a heavy dose of rationalism that made it easy to sell to the masses.
Therefore the captain proclaimed "Full Speed Ahead! Let's see what she can do!", ignoring the possibilities of icebergs this late in the season. Our Captains of the industry, looked out the bridge in 2005 and said "Damn the rising rates! Lower the FICOs! Raise the LTVs! Screw the documentation! Lets see what she can do! What can go wrong? Values will never decrease and unemployment will never rise! AND doesn't everyone deserve a home!!!"
Well sad to say the last months, and especially weeks, have personified that period from when the Titanic hit the iceberg. The mix of denial, panic and blame as the unthinkable occurs is deafening. Some due to their "class" or "connections" have procured a lifeboat, while some make desperate moves, while others literally "rearrange the deck chairs on the Titanic". I continue to see companies pricing well below margin, approving no doc loans, paying guarantees based on old incomes unattainable today, branches opening based on old volume assumptions,etc The panic is really being seen by those who hold the debt. They were leveraged up to 30-1 and have been pulling the string on the deleveraging over the past year. The more they pull the uglier it gets and their minds start to racing to figure how low it can go. It' s human nature that once your calm, cool world of your safe reality is shattered, your mind starts racing to the worst case scenarios. But once you shatter the first, then the second worst case scenario, your mind starts to racing forward to get to the nightmare before the nightmare gets to you. All that panic induces a panic and creates its own reality.
By banks not lending to other banks due to fear of not being paid back, it single handedly drives down the economy by taking the life giving oil out of the engine. Our credit contagion now spreads to almost all other businesses, costing jobs, which drive down housing more and the economy with it. Now hopefully the American public will realize that Federal action is needed to help save all of us, not just Wall St.
But in the meantime we return to the Titanic and see the gruesome part of the actual sinking of the ship. Some have reached the safety of a bank or hedge fund lifeboat, but most are jumping from the deck into uncertainty or simply going down with the ship deniedly praying for survival. Right now all non-bank businesses are upside down due to Libor's spike from 2 to 6 to 4 to---.These lending terms matched with voracious cash needs of credit hedge margin calls and credit line haircut increases mean every lender is upside down on every deal they do..especially wholesale.
So what will this Rescue package(not a bailout) do for us? Will the TARP or Securitization Housing Investment Trust buy enough, quickly enough to free up credit? Doubtful. It is a weak bill that is unwieldy to implement. The market will drift lower as there is a realization that the confidence hasn't returned to the system. More action will be needed and we may get it right but the potential for a long painful drift in either the relative comfort of a lifeboat or the deep freeze of inhospitable waters where hopefully you had enough antifreeze in your blood or proper economic insulation to survive.
As a producer all you can do is write loans, write loans, write loans. You can't control the rest. If you can't write loans, leave the business or be of tremendous value to those who do. Work hard, work smart and be ahead of the curve for your referral sources. There are some great stories of survivors just like the Titanic.
no comments on the dimissal of the arrogant hierarchy at cw? I find it hard to believe that judgenment day came and went without comment. Your tongue must be bleeding.
Posted by: Brian Anger | October 06, 2008 at 02:08 PM
Brian,
Great analogy and advice! There are mortgage loans to be written and there is opportunity for the tenured professional.
Take Care,
Deb
Posted by: Deb Bielicki | October 07, 2008 at 07:23 AM