AV's recent inpatient surgery experience - she had a cervical dystectomy (relatively common neck surgery) - reminded of how fundamentally flawed our US healthcare system is. Almost every industry/market that's "efficient" functions on some basic common principles/dynamics: Customers make purchasing decisions based on cost, quality and service and producers/companies compete on the basis of these 3 core product/service "differentiation" dimensions.
Let's take the retail industry as an example. Walmart is all about being low cost and has build a business model that continuously wrings cost out of the entire supply chain for the goods they sell. A store like Nordstrom on the other hand tries to be more upscale, so it competes on service and to a lesser extent quality (by carrying brands perceived to be higher quality). And Louis Vitton, Tiffany, and other luxury brands compete largely on quality only (with quality being defined as a combination of style/perception, brand value, material, cut, etc.).
The key to the above tradeoffs occuring, of course, is information (transparency) about the 3 differentiating dimensions, particularly quality and cost....to enable consumers to evaluate different companies and make their decision based on what matters most to them. But none of this is possible in healthcare - an industry that is almost a fifth of US GDP!
In healthcare, you make a decision with no idea of what it will cost you and really no way/system of getting such a cost estimate without significant effort. And quality is an entirely different matter. Where cost is difficult but not impossible to assess, quality is. There is absolutely no data available to consumers to help them understand the experience level and output/performance (aka "outcomes" in healthcare) of the doctor they choose to go with. And did I mention there's no systematic way of finding a doctor that meets your needs? The whole system of finding a doctor is primitive - you ask around to see if anyone you know (including other doctors one might know) have a recommendation (which is again, largely based on perception/reputation and not facts).
I am definitely a believer that government led investment in infrastucture is a key tool to help get the US out of the current economic crisis (while making sensible investments which will pay off and are required for our long term health). I would love to see the Obama administration address some of the issues above to help get the US healthcare industry more nimble, competitive and no doubt efficient.
Tuesday, December 23, 2008
Saturday, December 20, 2008
Obama's slap in the face to the gay community
A few days before November 4th, the evangelical/right wing proponents of Proposition 8 (the anti-gay marriage ballot initiative) widely broadcast President Elect Obama's words on the issue of gay marriage to Californian's. Although Obama was against Proposition 8 and supports civil unions for same sex couples, he does not support gay marriage and has said on many occasions that he believes marriage is appropriate only between a man and a woman.
So the liberal and generally LBGT supportive Obama's words were used against the gay community....and likely led to the victory of Proposition 8....a major step back for equal rights.
I am extremely dissapointed by the message President Elect Obama sent to gay American's this week by picking Rick Warren for the invocation at the Presidential inaugration in January. While I totally understand and agree with listening to all sides of a debate....and speaking politely to those who disagree with you, the Rick Warren selection shows the gay community that their families don't matter right now.
Rick Warren compares gay marriage to pedophilia, marriage between siblings and polygamy....
I'm dissapointed in President Elect Obama.....and won't be tuning into the invocation or the inaugration. I'd rather just sit and meditate by myself.
So the liberal and generally LBGT supportive Obama's words were used against the gay community....and likely led to the victory of Proposition 8....a major step back for equal rights.
I am extremely dissapointed by the message President Elect Obama sent to gay American's this week by picking Rick Warren for the invocation at the Presidential inaugration in January. While I totally understand and agree with listening to all sides of a debate....and speaking politely to those who disagree with you, the Rick Warren selection shows the gay community that their families don't matter right now.
Rick Warren compares gay marriage to pedophilia, marriage between siblings and polygamy....
I'm dissapointed in President Elect Obama.....and won't be tuning into the invocation or the inaugration. I'd rather just sit and meditate by myself.
Tuesday, December 16, 2008
Untapped and Under-tapped Foreclosure Prevention Strategies: "Let a Hundred Flowers Bloom"
There is widespread agreement among key national political, economic and housing stakeholders (the government and regulators, consumers and Banks among others) on the need to help prevent foreclosures, keep as many people as possible in their homes, and "clear the housing market" of troubled assets quickly and fairly. This would help the housing market find a bottom more quickly - which housing market bottom will mark a turning point in our nations' economic recovery.
In the spirit of Barney Frank's statement "Let a Hundred Flowers Bloom", I have put together this foreclosure prevention vision (including feedback and insight from Ron Garber, CEO of Short Sale Plan and Eric Friedman, SVP of Loss MItigation at Indymac Bank).
The housing market and economy are facing problems larger than any individual or organization....and it is in this spirit that I am publicly sharing this vision. I would welcome feedback from anyone who has experience in foreclosure prevention and any of the related strategies/areas.
I will be pursuing some or all of these strategies for Los Angeles and perhaps nationally in my capacity as CEO of HausAngeles, and in partnership with Ron Garber, who has spent the last 2 years developing and refining systematic short sales knowledge, education/training, processes/documentation and infrastructure....believing that they are the preferred alternative to foreclosures for all parties involved.
In the spirit of Barney Frank's statement "Let a Hundred Flowers Bloom", I have put together this foreclosure prevention vision (including feedback and insight from Ron Garber, CEO of Short Sale Plan and Eric Friedman, SVP of Loss MItigation at Indymac Bank).
The housing market and economy are facing problems larger than any individual or organization....and it is in this spirit that I am publicly sharing this vision. I would welcome feedback from anyone who has experience in foreclosure prevention and any of the related strategies/areas.
I will be pursuing some or all of these strategies for Los Angeles and perhaps nationally in my capacity as CEO of HausAngeles, and in partnership with Ron Garber, who has spent the last 2 years developing and refining systematic short sales knowledge, education/training, processes/documentation and infrastructure....believing that they are the preferred alternative to foreclosures for all parties involved.
Saturday, December 6, 2008
My Grandfather's Sikhism, My Simple Life Philosophy
I consider myself spiritual but not very religious and don't have much patience for the bureaucracy of most religions including my own. I just don't see the need to have middlemen translate the teachings of my religion to me; my grandfather did a fine job of this during the times we spent together on vacation in Punjab, India while he was alive.
He taught me that our religion was about substance not form, that what matters is how you act in real life not whether you visit the Gurudwara (temple) everyday, and that the basic tenets of life and religion are simple. What’s difficult is actually living them fully and consistently.
My family are Sikhs, followers of a religion that I consider more a spiritual philosophy than a religion, and which originated about 500 years ago largely due to the friction between Islam and Hinduism in Northern India when the Mughals (who were Muslim) ruled over the largely Hindu populace.
I love and live by the version of Sikhism my grandfather taught me. It was mostly shared via a bunch of stories about the 10 Guru's who created and propagated the religion. Tales of their courage, honesty and philanthropy; how they stood up for what's right even in the face of death…again and again.
He told me that being a good Sikh was simple. All you had to do was live by 6 simple words: “Kirat Karo, Naam Japo, Vand Chako” (Kirat Karo: earn your livelihood by the sweat of your labor; Naam Japo: meditate on the name of God; and Vand Chako: share your earnings with others).
And he told me about “Chardi Kala” (which literally means “Rising Spirits”), the undying spirit of the Sikhs and a mindset and way of being I find myself returning to regularly even today. Here’s what www.answers.com had to say about Chardi Kala: “Chardi Kala indicates the elation or high spirits of Sikhism. Chardi Kala, meaning ‘the positive attitude’ is an equivalence of a mind that never despairs, never admits defeat and refuses to be crushed by adversities.”
I was reminded of my grandfather today, when my uncle Bob sent me a link to an online photo gallery on Sikhs by a photographer who visited India. Many of these images were familiar and comfortable for me: you can check them out at http://www.charlesmeacham.com (under Galleries; Being Sikh).
I liked Mr. Meacham’s description of Sikhs on his website. Here’s what he says:
“For over 500 years the teachings of the 10 enlightened Guru’s have influenced the believer’s of Sikhism to follow the doctrines of honesty, universal equality, fidelity, and meditation on God and his message. Their daily prayers urge peace and wellbeing for all mankind and their religion commands willingness to die in the protection of those who are poor and weak, no matter race or creed. Often described as Warrior Saints Sikhs have more than once taken to the sword in defending their homeland of Punjab and India”.
He taught me that our religion was about substance not form, that what matters is how you act in real life not whether you visit the Gurudwara (temple) everyday, and that the basic tenets of life and religion are simple. What’s difficult is actually living them fully and consistently.
My family are Sikhs, followers of a religion that I consider more a spiritual philosophy than a religion, and which originated about 500 years ago largely due to the friction between Islam and Hinduism in Northern India when the Mughals (who were Muslim) ruled over the largely Hindu populace.
I love and live by the version of Sikhism my grandfather taught me. It was mostly shared via a bunch of stories about the 10 Guru's who created and propagated the religion. Tales of their courage, honesty and philanthropy; how they stood up for what's right even in the face of death…again and again.
He told me that being a good Sikh was simple. All you had to do was live by 6 simple words: “Kirat Karo, Naam Japo, Vand Chako” (Kirat Karo: earn your livelihood by the sweat of your labor; Naam Japo: meditate on the name of God; and Vand Chako: share your earnings with others).
And he told me about “Chardi Kala” (which literally means “Rising Spirits”), the undying spirit of the Sikhs and a mindset and way of being I find myself returning to regularly even today. Here’s what www.answers.com had to say about Chardi Kala: “Chardi Kala indicates the elation or high spirits of Sikhism. Chardi Kala, meaning ‘the positive attitude’ is an equivalence of a mind that never despairs, never admits defeat and refuses to be crushed by adversities.”
I was reminded of my grandfather today, when my uncle Bob sent me a link to an online photo gallery on Sikhs by a photographer who visited India. Many of these images were familiar and comfortable for me: you can check them out at http://www.charlesmeacham.com (under Galleries; Being Sikh).
I liked Mr. Meacham’s description of Sikhs on his website. Here’s what he says:
“For over 500 years the teachings of the 10 enlightened Guru’s have influenced the believer’s of Sikhism to follow the doctrines of honesty, universal equality, fidelity, and meditation on God and his message. Their daily prayers urge peace and wellbeing for all mankind and their religion commands willingness to die in the protection of those who are poor and weak, no matter race or creed. Often described as Warrior Saints Sikhs have more than once taken to the sword in defending their homeland of Punjab and India”.
Sunday, November 30, 2008
Capital and Risk-Sharing: Smart Crisis Fighting Tools That Should Be Used Much More
I’m glad to see the government is finally using 2 “smart” tools – capital and risk sharing – to help address the financial institution panic and resulting failures we have seen since earlier in 2008 which have seriously escalated the financial and economic crisis facing the US and global economies today. While these tools don’t comprehensively address the myriad of financial and economic issues facing the US or the world today, they:
· Help stabilize Banks when no other 3rd party can/will do so: this is critical to stabilizing consumer sentiment, the markets and economy
· Are leveraged in their impact to the real economy: Because Banks typically lend $10 to $20 for every dollar in capital they hold
· Help minimize the tax-payer bill from all this government investing and intervention: by acknowledging the uncertainty around where the housing and credit/financial markets will bottom out, and putting a “cap” on the maximum losses a private investor can incur on an investment
· Help establish a floor for asset values (by limiting downside risk for investors): and therefore support and encourage the return of private investors into the capital markets
The need for government provided capital was obvious to me months ago at Indymac since such a significant capital infusion would likely have prevented the Bank’s failure and no private capital was available for the job. Every investor who had invested capital into any financial institution in the 12 months leading up to Indymac’s failure had lost all or a big portion of their money by the summer of 2008, so this lack of private capital was a rational market outcome. And risk sharing can and should reduce the size of the loss the government creates by selling Indymac’s assets as it will help mitigate the negative financial impact of the fact that Indymac’s assets are being sold by the government into the worst housing asset market since the Great Depression.
A wise man once said it was possible to “transform a breakdown into a breakthrough” and I think the tools above can be powerfully applied to the global economy today. After all, no large company is just a “US” company today. All major American companies are generally global in the markets they serve, the organizations they work with, and the workforces they leverage (even “little Indymac” which only operated in the US supported over 1000 employees in India). So by supporting US Banks and Financial Institutions the US government is already supporting the global economy (not just the US economy).
Why not do this more directly and on a bigger scale worldwide? As someone who is optimistic about the global economy’s long term prospects, I think we should. The US taking an ownership stake in a wide array of businesses all over the world could indeed help turn this breakdown into a breakthrough.
Friday, November 28, 2008
Redefining the War on Terror
The Mumbai "terrorist" attacks are a clear message to President Elect Obama, us, and the rest of the world. The problems of the world aren't just economic....they are equally urgent, social and extend deeply into our homes and places of worship.
The Bombay attacks are highly symbolic in their location/s, organization-level and timing. And they hit home. I definitely feel the significance of these particular attacks personally. The violence was directed at the heart of India's financial system where my (our) friends hang out, my (our) colleagues stay when they visit India, and our companies establish offices when they enter the Indian market (the 5 star hotels Taj and Oberoi in Bombay have been the India office for many a blue chip multi-national corporation). The targeting of westerners by the attackers is particularly galling since it targets a big source of support and growth for India and it's democracy, philosophies and people. India is getting more integrated with the west and the global economy, and the attacks sought to strike at the core locations and symbols of this progress.
So what? Since change is in the air, here's the 2 key changes I'd like to see made immediately in our"war on terror":
1. Rename it in a way that reflects what it is. In some ways I think we have glorified what is really going on, by allowing this global problem to be named a "War on Terror" fought against Terrorists. Certainly the acts can and do bring terror into people's hearts. But why not (at least) try to take away this terrible power? There is clearly no moral equality in this war, and the battleground is people's minds and hearts (not a physical battlefield). The truth is these so called terrorists are generally pathetic (and often unlucky) losers perpetrating violence in the name of God. Calling their movement what it is will go a long way towards accelerating it's end, in my view...and also helping make it less and ultimately non-violent.
2. Acknowledge that this is not only about Islam and is truly global/multi-national. Violent Islamic fundamentalists are certainly creating massive problems worldwide, but the problems extend beyond Islam. In my (our) lifetime the forces of religious fundamentalism have risen dramatically across the globe in reaction to the forces of globalization, westernization and modernity....and many outside Islam are also perpetrating violence in the name of their God. Broadening the focus beyond Islam will, I think, help address it more quickly in Islam also...as it will remove the ego and pride barrier created by the perceptions of denouncing an entire (and majorly important and large) religion.
The Bombay attacks are highly symbolic in their location/s, organization-level and timing. And they hit home. I definitely feel the significance of these particular attacks personally. The violence was directed at the heart of India's financial system where my (our) friends hang out, my (our) colleagues stay when they visit India, and our companies establish offices when they enter the Indian market (the 5 star hotels Taj and Oberoi in Bombay have been the India office for many a blue chip multi-national corporation). The targeting of westerners by the attackers is particularly galling since it targets a big source of support and growth for India and it's democracy, philosophies and people. India is getting more integrated with the west and the global economy, and the attacks sought to strike at the core locations and symbols of this progress.
So what? Since change is in the air, here's the 2 key changes I'd like to see made immediately in our"war on terror":
1. Rename it in a way that reflects what it is. In some ways I think we have glorified what is really going on, by allowing this global problem to be named a "War on Terror" fought against Terrorists. Certainly the acts can and do bring terror into people's hearts. But why not (at least) try to take away this terrible power? There is clearly no moral equality in this war, and the battleground is people's minds and hearts (not a physical battlefield). The truth is these so called terrorists are generally pathetic (and often unlucky) losers perpetrating violence in the name of God. Calling their movement what it is will go a long way towards accelerating it's end, in my view...and also helping make it less and ultimately non-violent.
2. Acknowledge that this is not only about Islam and is truly global/multi-national. Violent Islamic fundamentalists are certainly creating massive problems worldwide, but the problems extend beyond Islam. In my (our) lifetime the forces of religious fundamentalism have risen dramatically across the globe in reaction to the forces of globalization, westernization and modernity....and many outside Islam are also perpetrating violence in the name of their God. Broadening the focus beyond Islam will, I think, help address it more quickly in Islam also...as it will remove the ego and pride barrier created by the perceptions of denouncing an entire (and majorly important and large) religion.
Monday, November 17, 2008
Equality for all: US Supreme Court Decision and Timing
I am a strong believer that civil rights issues should be resolved through the legal (not political) process and feel it is only a matter of time until the US Supreme Court strikes all the discrimination that has been "constitutionalized" during the last 8 Bush years on the issue of gay marriage (sadly, fully 30 states now "ban" gay marriage via their constitutions). I was feeling like a naive optimist after a conversation over brunch this past weekend, where a (clearly very smart) lawyer made a strong argument that the US Supreme court wouldn't do what I say it will...at least not for the next 20 years!
Then today I saw 2 key arguments/quotes that give me hope that every individual and family will have equal rights and equal protection under the law in the USA sometime soon (despite the recent and unfortunate voter approval of the discriminatory Proposition 8 in California):
I was reading a fascinating article on the Princeton alumni website today entitled: "Her husband bakes, Scalia sings: Ginsburg describes the lighter side of the Supreme Court". Here's a direct quote from the article:
As she examined a small booklet with the text of the Constitution, she described her "favorite provision:" the end of section one of the 14th Amendment. She read aloud from it. "... (N)or shall any state deprive any person of life, liberty or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."
You can click here for the full article: http://www.princeton.edu/main/news/archive/S22/48/08A80/
Then, I saw an LA times opinion piece by Brian Gray, a Professor at UC Hastings College of Law in San Francisco, which draws a parallel between the arguments against Prop 8 and a decision made by the US Supreme Court on a Colorado proposition, which had (and I quote): 'barred the state and its political subdivisions from adopting or enforcing any law "whereby homosexual, lesbian or bisexual orientation, conduct, practices or relationships" are the basis of a claim of discrimination.'
Here's what happened on the Colorado issue (and I quote again):
"Following the enactment of Colorado's Amendment 2, its opponents filed suit claiming that it unlawfully singled out gays and lesbians as a class to deny them rights that other citizens not only possess but take for granted. These rights include access to housing, government services, public accommodations and public and private employment opportunities without regard to an individual's race, sex, religion, age, ancestry, political belief or other characteristic that defines each of us as a unique human being. Amendment 2, the opponents argued, therefore denied gays and lesbians the equal protection of the laws, which is a guarantee of the 14th Amendment to the U.S. Constitution.
To the surprise of many, the U.S. Supreme Court agreed."
Click here to read this fascinating LA Times article: http://www.latimes.com/news/opinion/la-oe-gray17-2008nov17,0,1425883,print.story
How long do you think it'll be before all individuals, gay or not, have full equal rights in the USA?
Then today I saw 2 key arguments/quotes that give me hope that every individual and family will have equal rights and equal protection under the law in the USA sometime soon (despite the recent and unfortunate voter approval of the discriminatory Proposition 8 in California):
I was reading a fascinating article on the Princeton alumni website today entitled: "Her husband bakes, Scalia sings: Ginsburg describes the lighter side of the Supreme Court". Here's a direct quote from the article:
As she examined a small booklet with the text of the Constitution, she described her "favorite provision:" the end of section one of the 14th Amendment. She read aloud from it. "... (N)or shall any state deprive any person of life, liberty or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."
You can click here for the full article: http://www.princeton.edu/main/news/archive/S22/48/08A80/
Then, I saw an LA times opinion piece by Brian Gray, a Professor at UC Hastings College of Law in San Francisco, which draws a parallel between the arguments against Prop 8 and a decision made by the US Supreme Court on a Colorado proposition, which had (and I quote): 'barred the state and its political subdivisions from adopting or enforcing any law "whereby homosexual, lesbian or bisexual orientation, conduct, practices or relationships" are the basis of a claim of discrimination.'
Here's what happened on the Colorado issue (and I quote again):
"Following the enactment of Colorado's Amendment 2, its opponents filed suit claiming that it unlawfully singled out gays and lesbians as a class to deny them rights that other citizens not only possess but take for granted. These rights include access to housing, government services, public accommodations and public and private employment opportunities without regard to an individual's race, sex, religion, age, ancestry, political belief or other characteristic that defines each of us as a unique human being. Amendment 2, the opponents argued, therefore denied gays and lesbians the equal protection of the laws, which is a guarantee of the 14th Amendment to the U.S. Constitution.
To the surprise of many, the U.S. Supreme Court agreed."
Click here to read this fascinating LA Times article: http://www.latimes.com/news/opinion/la-oe-gray17-2008nov17,0,1425883,print.story
How long do you think it'll be before all individuals, gay or not, have full equal rights in the USA?
Monday, November 10, 2008
Buying foreclosed homes...a lot beneath the surface
I just read this great article from this weekend’s LA Times describing the reporter’s experience purchasing a foreclosed home. I have seen/heard many similar stories from my business partner Avantika, a top performing realtor in LA who has bid on and sold several foreclosed properties recently....so thought I'd post this article. Call or email her (av@avantika.com) if you want to ask a question, buy/sell a home, or know someone who is buying or selling and could use a top notch real estate agent....in Los Angeles. ray
How I bought a foreclosed home
There were pitfalls on the the way, but an L.A. Times reporter found that research, strategy and being free of loan baggage helped.
By Peter Y. Hong
November 9, 2008
I did not set out to buy a foreclosed house. ¶ Earlier this year, I wrote about selling my condominium unit in 2005 to rent, rejecting the hyped promise of an always-rising real estate market. Now I've purchased a foreclosed home -- but that doesn't mean I've bought into the new wave of hype in real estate, the idea that cheap, repossessed houses are a sure bet. ¶ There's usually good reason many foreclosed houses languish with no buyers. They may be badly damaged or situated in places that seemed attractive only in the frenzy of a real estate bubble. ¶ The foreclosure inventory is loaded with properties far from job centers, stripped or even vandalized by previous owners or in abandoned developments with no parks, schools or even neighbors nearby. ¶ As a result, finding a decent house amid the wreckage of the real estate crash can be a long, tedious process. Then, actually buying one can also be tricky. When a foreclosed house in good shape and in a desirable location gets to market, it often attracts multiple offers, even in this struggling real estate market.
But a foreclosed house might still be an easier way to get what you want than trying to get stubborn individual sellers to lower their list prices. In both my day job covering the housing market and my own search for a house, I've seen what has worked for many buyers of foreclosed homes.
This is what worked for me.
Click here for the full article:
http://www.latimes.com/business/la-fi-cover9-2008nov09,0,2623620.story?page=1
How I bought a foreclosed home
There were pitfalls on the the way, but an L.A. Times reporter found that research, strategy and being free of loan baggage helped.
By Peter Y. Hong
November 9, 2008
I did not set out to buy a foreclosed house. ¶ Earlier this year, I wrote about selling my condominium unit in 2005 to rent, rejecting the hyped promise of an always-rising real estate market. Now I've purchased a foreclosed home -- but that doesn't mean I've bought into the new wave of hype in real estate, the idea that cheap, repossessed houses are a sure bet. ¶ There's usually good reason many foreclosed houses languish with no buyers. They may be badly damaged or situated in places that seemed attractive only in the frenzy of a real estate bubble. ¶ The foreclosure inventory is loaded with properties far from job centers, stripped or even vandalized by previous owners or in abandoned developments with no parks, schools or even neighbors nearby. ¶ As a result, finding a decent house amid the wreckage of the real estate crash can be a long, tedious process. Then, actually buying one can also be tricky. When a foreclosed house in good shape and in a desirable location gets to market, it often attracts multiple offers, even in this struggling real estate market.
But a foreclosed house might still be an easier way to get what you want than trying to get stubborn individual sellers to lower their list prices. In both my day job covering the housing market and my own search for a house, I've seen what has worked for many buyers of foreclosed homes.
This is what worked for me.
Click here for the full article:
http://www.latimes.com/business/la-fi-cover9-2008nov09,0,2623620.story?page=1
Sunday, November 9, 2008
Real Estate Construction Costs: Deflated in LA
There has been a constant 'inflation' in real estate construction costs over the past few years driven by the usual suspects: high commodity prices and a tight labor/talent market (with high demand for construction labor driving labor costs higher and higher over time).
So recently, I was pleasantly surprised to hear one of our clients (who is involved with redeveloping 2 properties they recently purchased) tell us about their ongoing experience with construction costs. 2 key points to note:
1. The price of development was great i.e., lower than expectations! They had a solid bid to get their work done for about $80 per square foot. Note that the numbers one generally sees for construction costs are in the $150-$250 (or higher) per square foot range. So this is amazing...and the key reason this was possible was due to the really slow labor market right now. People have lost jobs and can't find work as real estate development has slowed tremendously...so they are taking whatever work they can get, and reducing their rates to "win work".
2. They actually got a fixed bid on their project! Wow....just a few years ago, no contractor would take on that risk.
I guess in some ways the above should be no surprise. This is how the market works. In a down cycle, things get cheaper...and in some cases much cheaper. However, I don't think most people realize what a great time it is to construct right now. Good time to buy a fixer-upper (which is already much cheaper than it was a few years ago) and then further add value by improving the property.
PS: I'm talking Los Angeles
So recently, I was pleasantly surprised to hear one of our clients (who is involved with redeveloping 2 properties they recently purchased) tell us about their ongoing experience with construction costs. 2 key points to note:
1. The price of development was great i.e., lower than expectations! They had a solid bid to get their work done for about $80 per square foot. Note that the numbers one generally sees for construction costs are in the $150-$250 (or higher) per square foot range. So this is amazing...and the key reason this was possible was due to the really slow labor market right now. People have lost jobs and can't find work as real estate development has slowed tremendously...so they are taking whatever work they can get, and reducing their rates to "win work".
2. They actually got a fixed bid on their project! Wow....just a few years ago, no contractor would take on that risk.
I guess in some ways the above should be no surprise. This is how the market works. In a down cycle, things get cheaper...and in some cases much cheaper. However, I don't think most people realize what a great time it is to construct right now. Good time to buy a fixer-upper (which is already much cheaper than it was a few years ago) and then further add value by improving the property.
PS: I'm talking Los Angeles
The tyranny of the majority
On May 15th, 2008 the California Supreme Court made a historic decision. They ruled that it was a violation of the equal protection clause of the California Constitution to not afford gay couples the right to marry – almost exactly the same ruling they had made in 1948 on inter-racial marriage (which was at the time not allowed in California). Between June 16th (the day gay wedding licenses started being issued) and November 4th, approximately 18,000 couples got married in California.
The evangelical right was having none of the above. They knew that if gay marriages were allowed to continue in California (a major cultural force in the USA, and a state with the 7th largest economy in the world)…it was only a matter of time before they would become be allowed nationallly. After all, this exact sequence had occurred on the issue of inter-racial marriage. 19 years after the 1948 California ruling noted above, in 1967 the US Supreme Court (in a famous decision Loving v. Virginia) made the same ruling thereby eliminating all barriers to interracial marriage in the USA.
So on November 4th just as racial discrimination was dealt a massive and perhaps final blow with the election of the first African-American President of the USA, Californians voted by a 52.5% to 47.5% majority to take away this fundamental right to marry from gay couples in the state. Ironically, the same voters made the correct decision to expand animal rights in California.
Anger and sadness have enveloped millions in California since Proposition 8 passed last week…and this issue is by no means settled. Here are the thoughts of one prominent Los Angeles lesbian and mother who is in a 22 year committed relationship. I should also mention she is Deputy Mayor for Housing and Economic Development Policy for Los Angeles…working tirelessly to create more affordable housing for the poor and disadvantaged.ray
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Helmi Hisserich, Deputy Mayor, Housing and Economic Development Policy
On November 4th, Gays and Lesbians were pushed to the back of the bus. The vote to change California's constitution to ban same sex marriage was an act of prejudice against a minority group and a vote for second class citizenship. It is a sad irony that happened on the same day
that America voted for our first African American President. But it is also a reminder that the fight against prejudice is long and painful.
For the past 173 days I have thought about the meaning of marriage almost every day. I am a lesbian who has been in a relationship for 22 years. My partner and I have been faithful to one another, for richer or poorer, in sickness and health for more than two decades, but we have never had a wedding. We have been registered domestic partners since the law first allowed it in 1998, but that is definitely not the same as marriage. On my paycheck, my taxpayer ID says "single".
On May 15th, 2008 when the moderate Republican Supreme Court said the California Constitution guaranteed the right of same sex couples to be married, a sense of acceptance and equality came over me that was so powerful it I felt it deep in my bones. My God, I do have the fundamental right to pursue happiness in marriage with the person I love. This is what it means to live in a free country, this is the meaning of equality. My gay and lesbian friends all talked about it, especially those of us who are in long term relationships. We all felt we were being protected and accorded dignity under the law. It felt amazing. Prejudice is funny that way, when it is removed you realize
how accustomed you have become to being treated with less respect you deserve.
The 173 days between the California Supreme Court decision and the November election were painful. For me, it felt like a walk to the gallows. I know good people who are awkward and uncomfortable about homosexuality. I knew the yes on 8 campaign was playing on peoples fears. It made me sick to think that people by referendum could vote to take my rights away. In California you can change the constitution with a simple majority vote, but you need a two third majority to raise sewer fees. What kind of justice is that?
On election night, I was at the Music Box theater in Hollywood, which was the rallying place for the No on Prop 8 campaign. When Barack Obama was elected president, the place went wild. People were cheering and crying. We all understood the importance of this election. Many of us had worked on the Obama campaign as well as the No on 8 Campaign; donating time and money to bring about change. For an hour we felt jubilant beyond measure. But then the reality hit that our friends and neighbors had voted to eliminate our constitutional right to marry. The happiness faded.
The day after the election, my daughter came home from 6th grade and told me kids were saying gays and lesbians are disgusting. She said she felt like people hated our family without knowing us. That is what prejudice is, I told her, judging people without knowing them. But 50 years ago a black person and a white person could not get married, and today someone from an interracial family was elected the president. She asked if we could change the constitution back to what it was. At first my though wandered to the difficult struggle we face to gain acceptance, but as I looked at down at her shining face in her blue community organizer t-shirt, the future became very clear - "Yes we Can".
The evangelical right was having none of the above. They knew that if gay marriages were allowed to continue in California (a major cultural force in the USA, and a state with the 7th largest economy in the world)…it was only a matter of time before they would become be allowed nationallly. After all, this exact sequence had occurred on the issue of inter-racial marriage. 19 years after the 1948 California ruling noted above, in 1967 the US Supreme Court (in a famous decision Loving v. Virginia) made the same ruling thereby eliminating all barriers to interracial marriage in the USA.
So on November 4th just as racial discrimination was dealt a massive and perhaps final blow with the election of the first African-American President of the USA, Californians voted by a 52.5% to 47.5% majority to take away this fundamental right to marry from gay couples in the state. Ironically, the same voters made the correct decision to expand animal rights in California.
Anger and sadness have enveloped millions in California since Proposition 8 passed last week…and this issue is by no means settled. Here are the thoughts of one prominent Los Angeles lesbian and mother who is in a 22 year committed relationship. I should also mention she is Deputy Mayor for Housing and Economic Development Policy for Los Angeles…working tirelessly to create more affordable housing for the poor and disadvantaged.ray
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Yes we Can! Reflections on Gay Marriage in California
Helmi Hisserich, Deputy Mayor, Housing and Economic Development Policy
On November 4th, Gays and Lesbians were pushed to the back of the bus. The vote to change California's constitution to ban same sex marriage was an act of prejudice against a minority group and a vote for second class citizenship. It is a sad irony that happened on the same day
that America voted for our first African American President. But it is also a reminder that the fight against prejudice is long and painful.
For the past 173 days I have thought about the meaning of marriage almost every day. I am a lesbian who has been in a relationship for 22 years. My partner and I have been faithful to one another, for richer or poorer, in sickness and health for more than two decades, but we have never had a wedding. We have been registered domestic partners since the law first allowed it in 1998, but that is definitely not the same as marriage. On my paycheck, my taxpayer ID says "single".
On May 15th, 2008 when the moderate Republican Supreme Court said the California Constitution guaranteed the right of same sex couples to be married, a sense of acceptance and equality came over me that was so powerful it I felt it deep in my bones. My God, I do have the fundamental right to pursue happiness in marriage with the person I love. This is what it means to live in a free country, this is the meaning of equality. My gay and lesbian friends all talked about it, especially those of us who are in long term relationships. We all felt we were being protected and accorded dignity under the law. It felt amazing. Prejudice is funny that way, when it is removed you realize
how accustomed you have become to being treated with less respect you deserve.
The 173 days between the California Supreme Court decision and the November election were painful. For me, it felt like a walk to the gallows. I know good people who are awkward and uncomfortable about homosexuality. I knew the yes on 8 campaign was playing on peoples fears. It made me sick to think that people by referendum could vote to take my rights away. In California you can change the constitution with a simple majority vote, but you need a two third majority to raise sewer fees. What kind of justice is that?
On election night, I was at the Music Box theater in Hollywood, which was the rallying place for the No on Prop 8 campaign. When Barack Obama was elected president, the place went wild. People were cheering and crying. We all understood the importance of this election. Many of us had worked on the Obama campaign as well as the No on 8 Campaign; donating time and money to bring about change. For an hour we felt jubilant beyond measure. But then the reality hit that our friends and neighbors had voted to eliminate our constitutional right to marry. The happiness faded.
The day after the election, my daughter came home from 6th grade and told me kids were saying gays and lesbians are disgusting. She said she felt like people hated our family without knowing us. That is what prejudice is, I told her, judging people without knowing them. But 50 years ago a black person and a white person could not get married, and today someone from an interracial family was elected the president. She asked if we could change the constitution back to what it was. At first my though wandered to the difficult struggle we face to gain acceptance, but as I looked at down at her shining face in her blue community organizer t-shirt, the future became very clear - "Yes we Can".
Monday, November 3, 2008
Elusive Search for the Bottom: Housing Market Update
A lot of people around me, especially those focused on buying real estate as an investment in this historically challenging real estate market, are obsessed with when US home prices will “bottom out”. I believe people sometimes focus on finding the lowest home price at the expense of other equally important economic factors such as the cost of construction/”fixing the place” and financing costs…both of which are at historic lows right now, and thought I’d share some of the latest news/information relevant to this topic:
1. The general consensus of economists (this is available from several media sources) is that home prices, which have already tumbled 20% from their peak three years ago, will probably sink another 10% before stabilizing.
2. Per a Wall Street Journal article on October 29, 2008 (see below for an excerpt, and a link to the article), the consensus at a National Association of Home Builders conference recently was that “home prices will bottom out as early as the middle of next year (2009)”.
3. Finally, there were several articles this past week discussing the troubled mortgage modification plan the FDIC has implemented at Indymac since they took management control in July. The FDIC is proposing implementing this type of plan at a much broader level nationally to reduce the total number of foreclosures in the future. I agree that foreclosures are generally bad for everyone involved (including the homeowner and the lender)….and the more that’s done to avoid them systematically, the better. I also believe addressing this issue will help home prices “find their bottom”. While the White House has not made a decision on the FDIC backed proposal yet (and likely won’t till we have a new President), JP Morgan announced over the weekend that it is launching a similar program which should help prevent foreclosure for about 400,000 homeowners. All this is good news from a housing finding its bottom standpoint.
I won’t take an official position on when the market will bottom as I believe it’s already a great time for folks with a long term investment horizon to invest in real estate. And as a wise person once said: “you only know the market bottomed once it’s too late (i.e., once it’s started rising again). But here’s some thoughts on what the above could mean for you:
Selling: If you’re a current homeowner….this is generally not a good time to sell….so unless you believe you must sell for financial or other life reasons (e.g., job change), hold off on selling the real estate you own currently. The key caveat here is if you think you’re going to need to sell in the next 24 months or so. If this is the case, I would consider selling now as you’ll likely maximize your home value by selling today vs. in the near future.
Buying: If you’re thinking about buying for living or investment purposes, then the key is to have a long time horizon (e.g., 5 years or longer). For folks who fall into this category, I believe it’s a good time to start looking at possible opportunities including foreclosures.
Key Recent Articles:
Economists Predict Home Prices Will Bottom Next Year (WSJ, 10/29/08)
When will housing's sickening slide stop?
According to economists at the semi-annual National Association of Home Builders forecast conference, not soon—though the end is in sight. The consensus: Home prices will bottom out as early as the middle of next year.
I've been attending these conferences for years, and last spring's was the gloomiest I'd ever attended. The latest conference, held last week, was also downbeat, but with a glimmer of hope—many of the economists seemed optimistic that the government's bailout plan, which includes buying toxic mortgage debt, will lead to housing's recovery. More affordable prices, pent-up demand, incentives on new homes, fewer housing starts and expected declines in interest rates for fixed-rate mortgages also should help ease the crisis, said David Seiders, chief economist of the trade group.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122522301876377101.html
Massive Effort to Save Mortgages (WSJ, 11/01/08)
J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.
The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122549543952589677.html
FDIC Plan Tests Limits of Leniency (WSJ, 11/01/08)
When the Federal Deposit Insurance Corp. seized control of IndyMac Bancorp -- the nation's 10th-largest mortgage lender by loan volume -- the agency vowed to ease terms for many of its troubled borrowers. In doing so, the FDIC wanted to show the mortgage industry how it could slash home foreclosures by making decisions both sensible and humane.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122548504641688959.html
1. The general consensus of economists (this is available from several media sources) is that home prices, which have already tumbled 20% from their peak three years ago, will probably sink another 10% before stabilizing.
2. Per a Wall Street Journal article on October 29, 2008 (see below for an excerpt, and a link to the article), the consensus at a National Association of Home Builders conference recently was that “home prices will bottom out as early as the middle of next year (2009)”.
3. Finally, there were several articles this past week discussing the troubled mortgage modification plan the FDIC has implemented at Indymac since they took management control in July. The FDIC is proposing implementing this type of plan at a much broader level nationally to reduce the total number of foreclosures in the future. I agree that foreclosures are generally bad for everyone involved (including the homeowner and the lender)….and the more that’s done to avoid them systematically, the better. I also believe addressing this issue will help home prices “find their bottom”. While the White House has not made a decision on the FDIC backed proposal yet (and likely won’t till we have a new President), JP Morgan announced over the weekend that it is launching a similar program which should help prevent foreclosure for about 400,000 homeowners. All this is good news from a housing finding its bottom standpoint.
I won’t take an official position on when the market will bottom as I believe it’s already a great time for folks with a long term investment horizon to invest in real estate. And as a wise person once said: “you only know the market bottomed once it’s too late (i.e., once it’s started rising again). But here’s some thoughts on what the above could mean for you:
Selling: If you’re a current homeowner….this is generally not a good time to sell….so unless you believe you must sell for financial or other life reasons (e.g., job change), hold off on selling the real estate you own currently. The key caveat here is if you think you’re going to need to sell in the next 24 months or so. If this is the case, I would consider selling now as you’ll likely maximize your home value by selling today vs. in the near future.
Buying: If you’re thinking about buying for living or investment purposes, then the key is to have a long time horizon (e.g., 5 years or longer). For folks who fall into this category, I believe it’s a good time to start looking at possible opportunities including foreclosures.
Key Recent Articles:
Economists Predict Home Prices Will Bottom Next Year (WSJ, 10/29/08)
When will housing's sickening slide stop?
According to economists at the semi-annual National Association of Home Builders forecast conference, not soon—though the end is in sight. The consensus: Home prices will bottom out as early as the middle of next year.
I've been attending these conferences for years, and last spring's was the gloomiest I'd ever attended. The latest conference, held last week, was also downbeat, but with a glimmer of hope—many of the economists seemed optimistic that the government's bailout plan, which includes buying toxic mortgage debt, will lead to housing's recovery. More affordable prices, pent-up demand, incentives on new homes, fewer housing starts and expected declines in interest rates for fixed-rate mortgages also should help ease the crisis, said David Seiders, chief economist of the trade group.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122522301876377101.html
Massive Effort to Save Mortgages (WSJ, 11/01/08)
J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.
The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122549543952589677.html
FDIC Plan Tests Limits of Leniency (WSJ, 11/01/08)
When the Federal Deposit Insurance Corp. seized control of IndyMac Bancorp -- the nation's 10th-largest mortgage lender by loan volume -- the agency vowed to ease terms for many of its troubled borrowers. In doing so, the FDIC wanted to show the mortgage industry how it could slash home foreclosures by making decisions both sensible and humane.
For the rest of the article, click here (you may need a WSJ subscription to read the full article): http://online.wsj.com/article/SB122548504641688959.html
Thursday, October 30, 2008
Speculation and accountability in the real estate market
It is a well known fact that most if not all asset bubbles are characterized by significant speculative investment activity (and by this I mean investors with very short investment timeframes and expectations). And this was certainly true of the US housing market (and other overinflated housing markets globally) over the last few years. It’s impossible to know exactly how much of the housing market was driven by speculation, as no agency tracks this issue…and even if they tried, it’s impossible to verify someone’s intent. But I sit back and wonder if our society has gotten too lax on “personal accountability”.
I remember a top Los Angeles real estate agent telling me earlier this year about taking a client to go see a home about to go into foreclosure (the home had been an investment property) and being surprised when the owner’s assistant drove up in an expensive Mercedes with the home keys.
I wondered: if the loan is secured only by the home, it sounds like the owner may be “getting away with something wrong”. He handed his keys to the Bank since the home didn’t make investment sense anymore…but it sounds like he has more than enough money (likely profits from earlier more successful investments) put away for himself…so he will be fine even if his credit gets hit for a while.
And then today, a successful female executive told me what she had viewed as a ‘sign’ of the bubble: a few years ago her maid had purchased a 2nd home for investment purposes!
I’m not an expert on foreclosure law. But it does seem like a lot of people including many walking down Main Street, were unrealistic/foolish with their investments. And I’m not sure our laws and regulations have kept up….so that there is fairness and accountability in the system.
I remember a top Los Angeles real estate agent telling me earlier this year about taking a client to go see a home about to go into foreclosure (the home had been an investment property) and being surprised when the owner’s assistant drove up in an expensive Mercedes with the home keys.
I wondered: if the loan is secured only by the home, it sounds like the owner may be “getting away with something wrong”. He handed his keys to the Bank since the home didn’t make investment sense anymore…but it sounds like he has more than enough money (likely profits from earlier more successful investments) put away for himself…so he will be fine even if his credit gets hit for a while.
And then today, a successful female executive told me what she had viewed as a ‘sign’ of the bubble: a few years ago her maid had purchased a 2nd home for investment purposes!
I’m not an expert on foreclosure law. But it does seem like a lot of people including many walking down Main Street, were unrealistic/foolish with their investments. And I’m not sure our laws and regulations have kept up….so that there is fairness and accountability in the system.
Monday, October 27, 2008
One simple idea for ending price discrimination in health care
2 women walk into a hospital with acute stomach pain. One is a highly paid lawyer at a top law firm who is covered by her company’s health insurance plan and the other is a working class American without health insurance. Both women get the exact same diagnostic tests and medical care, and both stay in the hospital for the exact same number of nights. Do the two women pay the same amount for the health care they consume (in total, including payments made by the insurance company on behalf of the lawyer who has health insurance)? Likely not, if the above happens in the USA.
Does this make any sense? I believe the answer is clearly no….and yet this unfair practice has been allowed to go on for decades….and is still going on today. The reason for this is that insurance companies in America directly negotiate “bulk pricing” directly with hospitals and other healthcare providers. This pricing is usually significantly lower than the “list price” of a product or service. However, when an individual (e.g., uninsured worker, foreign national, etc.) who is paying for their health care expenses out of pocket walks into a health care provider, they pay the “list price”. It’s ironic that this leads to price discrimination against the same (generally poorer) individuals who couldn’t afford health insurance in the first place.
So here’s a simple solution for ending health care price discrimination in America: Mandate that every hospital or health service provider can only charge uninsured individuals the average of the pricing they have negotiated with their health insurance companies. This would eliminate much pain and suffering….and right a basic wrong in our health care system today.
November 1, 2008 Update:
Today, I received an "Explanation of Benefits" Statement from my health insurance provider which I think proves my point above:
Service Date: October 16, 2008
Type of Service: Outpatient Services (a generic term to say this is for a minor outpatient procedure performed about 2 weeks ago)
Total Billed (to health insurance company): $5,665
Patient Savings: $4,767
Coinsurance Copayment Amount: $89.80
Claims Payment: $808.20
In other words, the total cost to the insured party (in this case me) and the insurance company was $898...or 16% of the amount billed. So we saved $4,767 for only one reason: we had the insurance company negotiating with the provider, auditing the bill etc.
Does this make any sense? I believe the answer is clearly no….and yet this unfair practice has been allowed to go on for decades….and is still going on today. The reason for this is that insurance companies in America directly negotiate “bulk pricing” directly with hospitals and other healthcare providers. This pricing is usually significantly lower than the “list price” of a product or service. However, when an individual (e.g., uninsured worker, foreign national, etc.) who is paying for their health care expenses out of pocket walks into a health care provider, they pay the “list price”. It’s ironic that this leads to price discrimination against the same (generally poorer) individuals who couldn’t afford health insurance in the first place.
So here’s a simple solution for ending health care price discrimination in America: Mandate that every hospital or health service provider can only charge uninsured individuals the average of the pricing they have negotiated with their health insurance companies. This would eliminate much pain and suffering….and right a basic wrong in our health care system today.
November 1, 2008 Update:
Today, I received an "Explanation of Benefits" Statement from my health insurance provider which I think proves my point above:
Service Date: October 16, 2008
Type of Service: Outpatient Services (a generic term to say this is for a minor outpatient procedure performed about 2 weeks ago)
Total Billed (to health insurance company): $5,665
Patient Savings: $4,767
Coinsurance Copayment Amount: $89.80
Claims Payment: $808.20
In other words, the total cost to the insured party (in this case me) and the insurance company was $898...or 16% of the amount billed. So we saved $4,767 for only one reason: we had the insurance company negotiating with the provider, auditing the bill etc.
Friday, October 24, 2008
A New Focus for American Foreign Policy: Human Rights
One of the fatal flaws of the Bush approach/policy framework that I would love to see Barack Obama change…is this idea that it is America’s job to spread Democracy around the world. As a student of Democracy and child of the largest Democracy in the world (India), I do believe in and love Democracy. However, just like Capitalism….Democracy, too, is a flawed, chaotic, and imperfect system and I just don’t think it’s America’s job to tell other countries what political system is best for them.
In fact from a purely theoretical standpoint, I believe a ‘benevolent autocracy’ is likely the best political system to help efficiently/quickly advance a society economically and socially. The only issue is, those benevolent/enlightened autocrats are really difficult (virtually impossible) to come by….and power corrupts, so this too is a slippery slope.
In any event, to get back to the original point of this blog….I believe America needs to officially change this stated policy of spreading Democracy….and focus primarily on spreading/ensuring basic human rights for every human being. Even if you disagree with my point on Democracy….I think most should agree safety comes before politics…and the problems the people of the world face in so many countries (including the Middle East) are still about safety.
Let’s work on the basics, and get to politics later.
In fact from a purely theoretical standpoint, I believe a ‘benevolent autocracy’ is likely the best political system to help efficiently/quickly advance a society economically and socially. The only issue is, those benevolent/enlightened autocrats are really difficult (virtually impossible) to come by….and power corrupts, so this too is a slippery slope.
In any event, to get back to the original point of this blog….I believe America needs to officially change this stated policy of spreading Democracy….and focus primarily on spreading/ensuring basic human rights for every human being. Even if you disagree with my point on Democracy….I think most should agree safety comes before politics…and the problems the people of the world face in so many countries (including the Middle East) are still about safety.
Let’s work on the basics, and get to politics later.
Wednesday, October 22, 2008
My 2 Cents On The Issue of Mortgage Fraud
I worked at Indymac Bank for a little over 4 years till July 2008 when - after the FDIC took management control of the Bank after a “run on the Bank” was (unfortunately) triggered by Senator Schumer’s leaked WSJ letter (discussed in a prior blog) - I resigned from my position as Chief Administrative Officer. My role had put me in charge of the “People” and “Expense/Cost” functions of the Company…but thankfully (I guess – given the massive blame game going on against anyone involved in the lending industry) I was not involved in any way with making loans.
Headquartered in Pasadena, my Indymac was a performance focused/driven but family friendly place which was discrimination free at the highest levels (certainly, no “discriminating” CEO would have ever hired me, given all the minority categories I fall into). All that mattered at work was “output” (i.e., what you got done) not politics. In fact, my Indymac experience included more “head” and “heart” than I’d personally expected to find in Corporate America (where I’ve been walking Executive hallways at “Fortune 1000” companies for about 12 years since I graduated from college).
I do believe fraud was a key contributing factor to the housing bubble that we have realized too late was both national and huge, and also believe we must find and punish those that perpetrated it because personal accountability is critical to the stable/smooth go forward functioning of the market. However based on my own personal experience at Indymac I have a strong instinct that the government is focusing its limited fraud resources in the wrong places, and working in bureaucratic and inefficient ways. In particular, I believe the government has an excessive focus and has over-allocated resources to search for fraud by senior management, but is not pursuing the most efficient ways (e.g., interviewing managers/employees of the firms they're investigating) to quickly find/punish any such “bad managers”. On the other side, the effort to investigate/prosecute perpetrators of individual fraud (i.e., at the transaction level) is woefully under-resourced (See this article on mortgage fraud and note the FBI was only able to investigate 2.6% of the over 46,000 suspicious activity reports submitted in 2007: http://www.consumeraffairs.com/news04/2008/05/mortgage_fraud_fbi.html).
What makes me think this? Well, I can tell you I didn’t see anything that looked or felt like fraud around me at Indymac (except where expected, in individual situations which were addressed appropriately consistent with company policy and existing laws/regulations). I say this as a member of Indymac’s Executive Committee (comprised of roughly the top 25 managers at the company) since late 2006, prior to which I was the CEO’s Chief of Staff (in which role I attended most of his meetings and reviewed most of his emails and other communications).
You’d think as a key member of management, I would have been interviewed after the FDIC took control of Indymac. It certainly looks like they are investing significant resources in investigating Indymac. For example, during the 48 hours after the FDIC takeover of Indymac, millions of pieces of paper were taken from Indymac’s Corporate Offices for review/investigation. I walked into my office on July 12th, the day after the FDIC took over Indymac, to find my office (and my Assistant’s filing cabinets) stripped of every piece of paper I had accumulated over the course of my 4 years at Indymac (and I can tell you I am highly organized…so there was lots of it).
No-one really explained what was being investigated or why…just that conducting a detailed investigation was “standard protocol”. Given I had a lot of exposure to top management’s activities in the years preceding the companies’ failure I thought I would try to help, so mentioned to one of the top FDIC managers that they were welcome to interview me as I had spent a lot of time with the CEO (who was no longer at the Bank as part of the government takeover) and had read a lot (perhaps even most) of his communications for roughly a 2 year period (from fall 2004 to fall 2006). He nodded, but nothing happened.
To cut a long story short, I decided shortly thereafter to resign from the company...as the "head" and "heart" of the company was gone and I just couldn’t sit and watch the FDIC create a massive loss by fire-selling the company’s assets into the worst market for mortgage assets in 80 years. Before departing the company about a week later (with no ‘golden parachute’ or severance, I should note), I repeated my offer one more time. To this day, no one from the FDIC or any other governmental organization has called me to take me up on my offer.
So my hypothesis – based on my own personal experience – is that people’s ire and the government’s dollars are misdirected in the fraud category. I believe it is unlikely there was widespread fraud at the top levels of the (recently or currently distressed) financial institutions…and that in fact mortgage fraud was largely perpetrated at lower levels within companies and by individuals outside the financial institutions who were independent. As a result, I believe the government should speed up/resolve the management blame game by interviewing all the executives (remaining and departed) at the various distressed financial institutions. This process would take weeks, not years….and would be more effective at identifying management fraud than reviewing millions if not billions of pieces of paper. Then shift the resources currently deployed to read/review the millions of pages collected from these companies largely over to investigating and prosecuting individual fraud.
Headquartered in Pasadena, my Indymac was a performance focused/driven but family friendly place which was discrimination free at the highest levels (certainly, no “discriminating” CEO would have ever hired me, given all the minority categories I fall into). All that mattered at work was “output” (i.e., what you got done) not politics. In fact, my Indymac experience included more “head” and “heart” than I’d personally expected to find in Corporate America (where I’ve been walking Executive hallways at “Fortune 1000” companies for about 12 years since I graduated from college).
I do believe fraud was a key contributing factor to the housing bubble that we have realized too late was both national and huge, and also believe we must find and punish those that perpetrated it because personal accountability is critical to the stable/smooth go forward functioning of the market. However based on my own personal experience at Indymac I have a strong instinct that the government is focusing its limited fraud resources in the wrong places, and working in bureaucratic and inefficient ways. In particular, I believe the government has an excessive focus and has over-allocated resources to search for fraud by senior management, but is not pursuing the most efficient ways (e.g., interviewing managers/employees of the firms they're investigating) to quickly find/punish any such “bad managers”. On the other side, the effort to investigate/prosecute perpetrators of individual fraud (i.e., at the transaction level) is woefully under-resourced (See this article on mortgage fraud and note the FBI was only able to investigate 2.6% of the over 46,000 suspicious activity reports submitted in 2007: http://www.consumeraffairs.com/news04/2008/05/mortgage_fraud_fbi.html).
What makes me think this? Well, I can tell you I didn’t see anything that looked or felt like fraud around me at Indymac (except where expected, in individual situations which were addressed appropriately consistent with company policy and existing laws/regulations). I say this as a member of Indymac’s Executive Committee (comprised of roughly the top 25 managers at the company) since late 2006, prior to which I was the CEO’s Chief of Staff (in which role I attended most of his meetings and reviewed most of his emails and other communications).
You’d think as a key member of management, I would have been interviewed after the FDIC took control of Indymac. It certainly looks like they are investing significant resources in investigating Indymac. For example, during the 48 hours after the FDIC takeover of Indymac, millions of pieces of paper were taken from Indymac’s Corporate Offices for review/investigation. I walked into my office on July 12th, the day after the FDIC took over Indymac, to find my office (and my Assistant’s filing cabinets) stripped of every piece of paper I had accumulated over the course of my 4 years at Indymac (and I can tell you I am highly organized…so there was lots of it).
No-one really explained what was being investigated or why…just that conducting a detailed investigation was “standard protocol”. Given I had a lot of exposure to top management’s activities in the years preceding the companies’ failure I thought I would try to help, so mentioned to one of the top FDIC managers that they were welcome to interview me as I had spent a lot of time with the CEO (who was no longer at the Bank as part of the government takeover) and had read a lot (perhaps even most) of his communications for roughly a 2 year period (from fall 2004 to fall 2006). He nodded, but nothing happened.
To cut a long story short, I decided shortly thereafter to resign from the company...as the "head" and "heart" of the company was gone and I just couldn’t sit and watch the FDIC create a massive loss by fire-selling the company’s assets into the worst market for mortgage assets in 80 years. Before departing the company about a week later (with no ‘golden parachute’ or severance, I should note), I repeated my offer one more time. To this day, no one from the FDIC or any other governmental organization has called me to take me up on my offer.
So my hypothesis – based on my own personal experience – is that people’s ire and the government’s dollars are misdirected in the fraud category. I believe it is unlikely there was widespread fraud at the top levels of the (recently or currently distressed) financial institutions…and that in fact mortgage fraud was largely perpetrated at lower levels within companies and by individuals outside the financial institutions who were independent. As a result, I believe the government should speed up/resolve the management blame game by interviewing all the executives (remaining and departed) at the various distressed financial institutions. This process would take weeks, not years….and would be more effective at identifying management fraud than reviewing millions if not billions of pieces of paper. Then shift the resources currently deployed to read/review the millions of pages collected from these companies largely over to investigating and prosecuting individual fraud.
Tuesday, October 21, 2008
Rascist slurs at McCain/Palin rallies should be denounced by candidates and party
I was trying last night to have a mellow evening at home after a full day of work. The full day of work was quite an experience after spending 3 blissful months ‘Exploring my Zen’ (as I like to call it) following the collapse of Indymac during the Summer. So here I was…cuddling with my 2 freshly bathed (and good smelling) Great Dane’s Lara and Tank…watching TV. But what I saw on CNN shocked me.
It looked (from the multiple clips they showed) like many people (definitely way more than a handful) at Palin/McCain rallies were screaming rascist comments and the crowd was supporting them. This included statements like “Obama bin Ladin”, “Mohammed Husein Obama”, “Them Commies”…etc.
Could this really be going on in America, without bipartisan public denunciation? As I recall, McCain actually defended the people attending their rallies during the final presidential debate. Is this new, or do these conversations go on in this rough tone more regularly? I sure hope I see McCain or Palin step up and call this nastiness what it is – unacceptable in America.
On a broader note: We take things like equal protection under the law and non-discrimination so much for granted at least all the places I’ve lived in America which includes Universities (New Jersey), Cities (Los Angeles, Chicago), Companies (McKinsey, Indymac, and many Fortune 1000 clients served while at McKinsey), or just plain walking around (anywhere….from San Francisco to Michigan to Oregon to Dallas to Seattle to Arizona…the list goes on).
But none of these “now so obvious” modern principles of equality so clearly embodied in the US constitution came naturally to Americans, or really to most societies around the world. They (for the most part) had to be inflicted on the majority by the righteous/enlightened minority or the founders of the modern day states.
It looked (from the multiple clips they showed) like many people (definitely way more than a handful) at Palin/McCain rallies were screaming rascist comments and the crowd was supporting them. This included statements like “Obama bin Ladin”, “Mohammed Husein Obama”, “Them Commies”…etc.
Could this really be going on in America, without bipartisan public denunciation? As I recall, McCain actually defended the people attending their rallies during the final presidential debate. Is this new, or do these conversations go on in this rough tone more regularly? I sure hope I see McCain or Palin step up and call this nastiness what it is – unacceptable in America.
On a broader note: We take things like equal protection under the law and non-discrimination so much for granted at least all the places I’ve lived in America which includes Universities (New Jersey), Cities (Los Angeles, Chicago), Companies (McKinsey, Indymac, and many Fortune 1000 clients served while at McKinsey), or just plain walking around (anywhere….from San Francisco to Michigan to Oregon to Dallas to Seattle to Arizona…the list goes on).
But none of these “now so obvious” modern principles of equality so clearly embodied in the US constitution came naturally to Americans, or really to most societies around the world. They (for the most part) had to be inflicted on the majority by the righteous/enlightened minority or the founders of the modern day states.
Saturday, October 18, 2008
Schumer triggers Indymac failure....why?
In late June this summer, about 2 weeks before the “failure” (i.e., inability to continue to be in business without third party support) of my ethical and well run employer Indymac Bank, I – then a Senior Executive at the Company - read in horror a letter that New York Senator Charles Schumer had sent to two key regulatory bodies - the Office of Thrift Supervision (Indymac’s primary regulator) and the FDIC - and that his office had “leaked” to the Wall Street Journal. We had been fighting hard to adapt/save our business and as many jobs as possible for 12 hard months since the capital markets froze up in the summer of 2007....and this Schumer letter looked like a possible death warrant for our business. "When it rains, it really pours", I thought.
Within hours the letter was all over other media outlets. It (the letter) essentially made public this New York Senator’s concerns about the financial condition of Indymac (a California Thrift), and triggered a “run on the Bank” which ultimately (2 tough and painful weeks later) led to the company’s takeover by the government.
The truth is that financial services companies survive and operate based on “confidence”, and no Bank in the country (or really the world) can survive a run on the Bank. In fact, Runs on Banks were virtually unheard of in modern times until….recently they have become quite widespread (more on why in a future post), and have been the “triggering mechanism” for most if not all of the financial institution failures you have read about in the media (in the US and abroad).
At the time it happened, me and those around me wondered what a US Senator who was also a longtime member of the Senate Banking Committee was doing taking such a public action which he knew (or should have known) could (and probably would) result in the failure of a (regulated) US Bank. Not to mention the question of why a New York Senator was so focused on a (relatively small) California Thrift….when there was plenty to worry about right in his own backyard i.e., on Wall Street.
But too many lives and jobs were at stake…and we got totally consumed first trying to fight this huge “fire” (to try to save the company)….and when the "fire" consumed the company, trying to deal with the aftermath of this disaster on our jobs and lives, and the jobs and lives of those around us.
Then, today, I saw the below article in the news…and it brought the events of the summer right back.
Wasn’t it irresponsible of Senator Schumer to basically trigger Indymac's failure? Why raise a public concern about any financial institution, knowing the possible consequences of such an action? And why Indymac instead of Washington Mutual or Wachovia or some Wall Street firm....all of whom really ultimately faced very similar problems?
Here are some articles on this issue:
Article 1:
Schumer Ripped IndyMac as Democratic Donors Probed Books
New York Sen. Charles Schumer's public criticism of IndyMac Bancorp last summer, which critics say helped spark a run on deposits that took under the troubled thrift, came while IndyMac's assets were being eyed by investors who are major donors to the Democratic Senate campaign committee the senator chairs.
http://online.wsj.com/article/SB122428567636046459.html?mod=rss_Politics_And_Policy
Article 2:
The OTS press release on Indymac...the day it was taken over by the government:
http://www.ots.treas.gov/index.cfm?p=PressReleases&ContentRecord_id=37f10b00-1e0b-8562-ebdd-d5d38f67934c&ContentType_id=4c12f337-b5b6-4c87-b45c-838958422bf3&MonthDisplay=7&YearDisplay=2008
And here is an excerpt from the release: “The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.
Within hours the letter was all over other media outlets. It (the letter) essentially made public this New York Senator’s concerns about the financial condition of Indymac (a California Thrift), and triggered a “run on the Bank” which ultimately (2 tough and painful weeks later) led to the company’s takeover by the government.
The truth is that financial services companies survive and operate based on “confidence”, and no Bank in the country (or really the world) can survive a run on the Bank. In fact, Runs on Banks were virtually unheard of in modern times until….recently they have become quite widespread (more on why in a future post), and have been the “triggering mechanism” for most if not all of the financial institution failures you have read about in the media (in the US and abroad).
At the time it happened, me and those around me wondered what a US Senator who was also a longtime member of the Senate Banking Committee was doing taking such a public action which he knew (or should have known) could (and probably would) result in the failure of a (regulated) US Bank. Not to mention the question of why a New York Senator was so focused on a (relatively small) California Thrift….when there was plenty to worry about right in his own backyard i.e., on Wall Street.
But too many lives and jobs were at stake…and we got totally consumed first trying to fight this huge “fire” (to try to save the company)….and when the "fire" consumed the company, trying to deal with the aftermath of this disaster on our jobs and lives, and the jobs and lives of those around us.
Then, today, I saw the below article in the news…and it brought the events of the summer right back.
Wasn’t it irresponsible of Senator Schumer to basically trigger Indymac's failure? Why raise a public concern about any financial institution, knowing the possible consequences of such an action? And why Indymac instead of Washington Mutual or Wachovia or some Wall Street firm....all of whom really ultimately faced very similar problems?
Here are some articles on this issue:
Article 1:
Schumer Ripped IndyMac as Democratic Donors Probed Books
New York Sen. Charles Schumer's public criticism of IndyMac Bancorp last summer, which critics say helped spark a run on deposits that took under the troubled thrift, came while IndyMac's assets were being eyed by investors who are major donors to the Democratic Senate campaign committee the senator chairs.
http://online.wsj.com/article/SB122428567636046459.html?mod=rss_Politics_And_Policy
Article 2:
The OTS press release on Indymac...the day it was taken over by the government:
http://www.ots.treas.gov/index.cfm?p=PressReleases&ContentRecord_id=37f10b00-1e0b-8562-ebdd-d5d38f67934c&ContentType_id=4c12f337-b5b6-4c87-b45c-838958422bf3&MonthDisplay=7&YearDisplay=2008
And here is an excerpt from the release: “The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.
Monday, October 13, 2008
A suggestion for addressing the root-cause of this financial crisis….from a (humble) Banker who has experienced it firsthand
One of the fundamental reforms that is nowhere to be seen on the horizon…that I believe is absolutely critical to addressing one of the key root causes of the current crisis of confidence in the global financial markets is the lack of any significant education on the topic of personal finances and money management in middle/high school and college curriculums worldwide, including in the US.
So here’s my idea Mr. Paulson and (hopefully future) President Obama: add a mandatory requirement that every middle school, high school, and college student in America get a basic education in how to think about personal finances (budgeting, money management, borrowing, net worth, financial ethics etc.). The long term benefits of such an addition to educational standards in the US and other countries would be invaluable.
I am regularly amazed by how little formal or informal education any of us receive (unless we have very diligent and focused parents with good personal financial habits…a rarity) on the topic of money. Yet, understanding money and making/managing it (in whatever quantities “work” for each individual) is critical for the achievement of personal success and happiness.
So here’s my idea Mr. Paulson and (hopefully future) President Obama: add a mandatory requirement that every middle school, high school, and college student in America get a basic education in how to think about personal finances (budgeting, money management, borrowing, net worth, financial ethics etc.). The long term benefits of such an addition to educational standards in the US and other countries would be invaluable.
I am regularly amazed by how little formal or informal education any of us receive (unless we have very diligent and focused parents with good personal financial habits…a rarity) on the topic of money. Yet, understanding money and making/managing it (in whatever quantities “work” for each individual) is critical for the achievement of personal success and happiness.