This is our fifth annual Golden Turkey Awards at CrunchedCredit.  It just gets easier and easier. There are simply so many worthy contenders for an award this year.  You know, we don’t stop and take a moment often enough to just say thank you to our government and its enormous regulatory apparatus for being such a reliable source of material for us.  We read in awe at the breathtaking nonsense often emanating from our elected panjandrums and their regulatory cohorts and enabling self-appointed policy elites.  I’m so appreciative of the studied, surely serious, perhaps well meaning, ham handed and ultimately self-defeating efforts of our government to micromanage economic outcomes.  We here at CrunchedCredit spend a fair amount of time talking to the aforesaid.  The poverty of understanding about how financial markets work is really stunning.  You have to admire the willingness of our government, marinated in hubris, to weigh in, chest out and chin high on so many issues above their intellectual fighting weight.  So let me take this moment to just say thanks.

But, of course, what makes our life as card-carrying members of the commentariat good, makes the life of those trying to actually conduct business in this regulatory free fire zone excruciatingly difficult.  Our job is calling B.S., sussing out the inanity, stripping away the syntactic chaff behind or within which much regulatory product is hidden and trying to provide some helpful guidance about how to deal with this increasingly complex world along the way.  Not to diminish that getting our fiscal and monetary policy right is a deadly serious business, but we can’t help but find some humor in all this.

So, here it is – our Golden Turkey Awards for 2014.

The Shelter in Place Award

For those of us who are history buffs, or actually old enough to remember the Cuban Missile Crisis, when the alarm went off all us little kids in school would march out into the hall and sit against the wall, head between our legs.  Apparently in that position a nuclear blast couldn’t hurt you (put your head between your legs and … kiss … goodbye).  In this spirit, we give the Shelter in Place Award this year to the Final Risk Retention Rule (as you will see, a multi-award winner this year).

We’ve been dreading the Final Rule, but anxious for its arrival for four long years.  If the Dodd-Frank Act had a validating ethos, it was to attempt to align the interest of financial industry players with sociality favored outcome.  Skin in the game, what a wonderfully compelling narrative.  But let’s face it, it’s hard to figure out which way the causal arrow was pointing about skin in the game in the 2007 meltdown.  Did banks fail because they laid off all the risk in the financial assets they originated or because they kept it?  The answer with hindsight is pretty clear.

But it’s way too hard to actually come up with rules and regulations that would actually avoid or mitigate the nastiness of a broad cyclical downturn in the economy.  Frankly, it’s impossible, but we pay our elected representatives and government-types to do things and impossibility is hardly a defense.  So they had to do something and one of those “somethings” was the Risk Retention Rule.  Now we’ve got it and next year we will have to start to deal with it.  Will this Rule prevent the next downturn?  Will it prevent investors from buying stuff they shouldn’t or mispricing stuff they do buy?  Will it stop the financial markets from getting over its  skis and providing more leverage than underlying transactions deserve?  No.  But then again, sitting in the hall with your head between your knees probably wasn’t going to work either.

The Profile in Courage Award

Where did the great meltdown of 2007 start and what was at its core?  Crappy residential loans.  So after struggling mightily to develop rules to make our financial markets a safe place to go out and play, and while imposing incredibly complex Risk Retention Rules on commercial real estate, resi gets a complete pass.  The embarrassment gene must have been entirely excised from those responsible for this travesty.  Have at it boys, make loans with 3% down, make the dream of home ownership available to everyone, whether they can pay for it or not.  Never mind those pesky Risk Retention Rules.  At the behest of that progressive Svengali, Richard Cordray, demanding the little guy gets free stuff in the name of “fairness,” those regulators whose job it is to protect investors from violations of the securities law and those whose job is to protect the safety and soundness of the banking marketplace rolled over like a poodle in the wolf pen at the National Zoo.

The Chinese Water Torture Prize

This goes to our government, writ large, for the continual drip, drip, drip of new regulations.  As we said earlier this year, even when each new regulatory initiative is not in and of itself inimical to the efficient functioning of the capital markets and the formation of capital (and let’s face it, most are), the mere fact of unrelenting and continuous regulatory change itself becomes a significant drag on the economy.  Just within the past several months we have seen Basel III, Reg AB II, the Liquidity Coverage Rule and the Risk Retention Rule.  Over 2500 pages of rule, commentary and bloviation that has sent the financial markets scurrying to figure out how to conduct business in light of just these three new rules.  And that’s just the tip of the iceberg.  We’re not done with Dodd-Frank for starters.  Let’s face it, we’ve gotten to a point where legislators simply cannot help themselves from tinkering.  Birds got to sing and regulators got to regulate.  As with the old fable of The Scorpion and the Frog, even if both drown, it is in the nature of the scorpion to sting.  The fact that this unending and almost unendurable regulatory output has what economists dryly describe as “negative externalities,” it’s just not that important to the tinkerers.

There is not a regulatory solution for every problem.  Not every problem deserves a solution and we are at a point where the solution itself is becoming the problem.  If we could only hit “pause.”  The perfect should not be the enemy of the good.  The hubris that allows regulators to think that they can manage financial systems that are vastly more complex than the rule makers can envision is a problem and a problem that we don’t see ending.  So drip, drip, drip; man up and live with it.

The “What Me, Worry?” Award 

In honor of the great philosopher Alfred E. Newman, this award is given to the ECB and the policy elites of Europe who can’t seem to gin up the sense of urgency or energy to address a slow moving but inexorable financial crisis in Europe.  When in doubt, have a summit, declare that important action will be taken and … continue to do nothing.  The banks remain impaired, the toxic nexus between the sovereigns and their national champion banks and the regulatory morass in which business continues to be conducted in Europe will make Europe an economic basket case for years if not decades to come.  But maybe if we just don’t think about it …

The Bonnie and Clyde Award

This award goes to the Justice Department, the CFPC, the SEC and the Attorneys General of so many of our states who have discovered the sheer political joy of raiding banks to bestow goodies on voters.  Oh, I suspect that some of them know that this abandonment of principal is doing neither the economy nor the Rule of Law any good and is at some level fundamentally unfair, but what the heck, everyone hates banks.  The banking sector, entirely beholden to the regulatory apparatus will not stand up to this protection racket and if it does harm, well, the political benefit of handing out goodies and tub thumping over faux Robin Hoodism in the short term far outweighs the damage.  And, of course, no one can pin the damage on good old Bonnie and Clyde and someone else will fix the problem anyway, won’t they?

The Caligula Award

According to the equivalent of the Fifth Century Roman Page 6, the mad Roman emperor Caligula[1] reportedly having sent his legions to the shores of Britannia to invade that wild place, decided instead to have his legions collect shells and bring them back to Rome in a Triumph over the Sea Gods.  Apparently, that was a lot easier than taking on the great, great grandparents of Robert the Bruce.  And that award this year goes to those responsible for the Volcker Rule and its proprietary trading limitations which are driving the banks out of market making and out of the business of holding stakes in a variety of private partnerships and ventures that support capital formation.  Prop trading as we now know, had virtually nothing to do with the 2007 financial crisis but hey, it’s a lot easier to punish banks than actually doing something to improve the safe and efficient operation of the capital markets.  Regrettably, the restrictions on prop trading are actually harming the economy and the restrictions on what banks can and cannot invest in is torqueing decisions in a way that has little to do with good economic decision making.  But Mr. Volcker and his cronies got their Triumph and who is going to tell Little Boots that they were just shells.

The Party Like It’s 1997 Award 

This award goes to our glorious elected representatives who are now actually urging the toxic twins to make more loans to people who probably can’t afford to repay them.  Heaping bad policy upon bad policy, after the CFBP got its way in getting a pass for the residential mortgage business from the risk retention rules, now purportedly serious people in and around Washington are urging the GSEs to make home ownership more affordable.  Does anyone remember where the financial crisis began?  So, the government enforcement community loots banks for making and selling dodgy residential mortgage loans, and then demand the GSEs loosen their underwriting standards.  You just cannot make this stuff up.

The Sphinx Prize

It is said that the Great Sphinx of Giza guarded the entrance to the ancient city of Thebes and would only allow passage to those who could answer its riddle. Now it is government regulators who are guarding the passage to financial markets and pose their riddles by way of opaque, verbose 400 page rules and commentary which result in as many questions as answers. In finalizing the Liquidity Coverage Ratio Rule the banking regulators may have, but perhaps didn’t, require large banks to backstop the obligation of off balance sheet securitization vehicles like CMBS deals with additional liquidity.  The regulators mutter in the Rule’s commentary about the banks need to provide liquidity for their “implicit obligations.”  So what is an “implicit obligation?”  Is this one of those Justice Potter things?  You think that somewhere in the over 400 pages of the Rule they might have gotten around to tossing in a couple of useful definitions, but no such luck.  If you’re going regulate, could you at least give us some clarity?  You do get that uncertainty breeds inaction and causes transactional friction, right?  It’s bad enough that our government piles rule upon rule without any self awareness of the frailty of human judgment, but why are you making us guess?

The Bayesian Reasoning Award 

Bayesian Reasoning is a fancy way of talking about updating your beliefs based on the evidence in the world around you.  The Golden Turkey this year for Bayesian Reasoning has got to go to all financial markets which continue to trundle ever onward despite the fact that the geopolitical world is apparently unraveling.  If you care to follow such things, the wider world is a really frightening movie.  Global growth is subpar and there’s no obvious answer as to the way out.  Most major economies have massive public debt which continues to be serviced only because everyone believes this debt can be serviced. The banking system in large parts of the world is pretty deeply impaired.  China continues to grow bolder and keeps making war-like noises across the South China Sea.  Then there’s the wild-eyed tyrant in Russia pining for the USSR of yore.  We have horrific and seemingly unsolvable radical Islamic movements that are destabilizing vast centers of the mid and far east.  And yet, at least for now, we yawn at horrific headline after headline.  Many have observed the financial markets’ view of the world as benign, as evidenced by the front page of the business section is often at odds with the front page of the paper; something’s got to give, they both can’t be right.  I am afraid one day we’ll all wake up and decide the front page has it right.

The Wishful Thinking Award

This one’s on me.  I have been predicting the resurgence of a robust commercial real estate securitization market (a term which is itself a euphemism for what was once called CRE CDO) for about the past two years.  I have been certain it would emerge in six months for fully two years.  So, let me double down and put myself in the competition for a Turkey next year.  I think 2015 will see the re-emergence of a market for commercial real estate securitization vehicles with a dynamic reinvestment feature so that market participants can effectively use the capital markets as a warehouse for the accumulation of CRE mortgage assets.  There, I’ve said it.  If I’m wrong again, I would appreciate it if you would forget it.


Our apologies to all those worthy legislators, regulators, jurists and others whose 2014 contributions did not make our list this year.  Be of good cheer, I am sure that all you contenders will continue to produce stomach churning silliness which will cause you to be in the running for the 2015 List.

[1] Malcolm McDowell was great as Little Boots in the movie.  Reportedly, a tad pornographic.  I, of course, couldn’t possible say.

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Photo of Rick Jones Rick Jones

Richard D. Jones (“Rick”), Rick Jones is a capital markets and securitization practitioner highly rated by both Chambers, USA  and Legal 500.

A leader in the industry, a recipient of both the CREFC Founders Award and the Distinguished Service Award from the…

Richard D. Jones (“Rick”), Rick Jones is a capital markets and securitization practitioner highly rated by both Chambers, USA  and Legal 500.

A leader in the industry, a recipient of both the CREFC Founders Award and the Distinguished Service Award from the Mortgage Bankers Association (MBA) for his leadership.  Rick publishes widely and speaks on a wide range of issues effecting the capital markets and mortgage finance.  He is a past president of the CRE Finance Council; a founder of the Commercial Real Estate Institute (CRI); a member and past governor of the American College of Real Estate Lawyers and a former chair of its Capital Markets Committee; and a member of the Commercial Mortgage Board of Governors (COMBOG) of the MBA. Mr. Jones is a member of the Real Estate Roundtable, serving on its Capital and Credit Policy Advisory Committee. He also serves as the chairman of CRE Finance Council’s PAC.