Credit Crisis

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You know, as an economist, I am a pretty good piano player. I struggle every morning, marinating in the news cycle, to try to understand what’s happened to the US economy and what its impact will be or might be upon the business of commercial real estate finance. We apparently are inching up on the point where the Fed may or may not do something, but as we discussed in this column a while back, the Fed’s idiosyncratic love affair with transparency is creating a cacophony of voices both in and outside of government that make even that threshold question hard to answer. It would seem we ought to pay attention, but, as the fed-heads and the commentariat continuously randomly blather and bloviate it’s just all noise, so what’s the point? I have been and remain fundamentally confused and in all the chatter I don’t see much wisdom or insight.
Continue Reading Commercial Real Estate and the Broader US Economy: What Me, Worry?

In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U. S. ____ (2015), the Supreme Court clarified issuer liability under §11 of the Securities Act. Section 11 provides that issuers are liable for registration statements that contain “an untrue statement of a material fact or omit to state a material fact required . . . to make the statements therein not misleading.” While the Court’s opinion applies in the context of publicly registered offerings, there are some important take-home messages for private placements too. Click through for three top considerations for issuers in light of Omnicare.
Continue Reading Three Top Considerations After Omnicare

A securitization community coming off of record issuances in 2014 has entered the new year with a mixture of nerves and optimism.  An estimated 6,500 finance professionals and attorneys converged for the 2015 ABS Las Vegas conference.  The new risk retention rules, and their impact on CLOs in particular, were on everyone’s lips – to the point that one panel moderator opened his remarks by saying that he was narrowing the stated discussion topic to focus exclusively on CLO risk retention, at the urging of the panelists and audience.
Continue Reading ABS Las Vegas 2015

I saw the movie Imitation Game last weekend, which is the story of Alan Turing and his role in breaking the Enigma Code which shortened World War II and saved millions of lives.  (Spoiler Alert:  He did it, we won.)  Turing, played by Benedict Cumberbatch, was terrific, even if you’re not a certified “Cumberbitch.”  It got me thinking that to actually navigate this economy, you have to be pretty good at code breaking.  There’s always a lot of code speak.  First, there’s the code of each of the hermetically sealed subcultures of business and markets (recent example on my desk is a note entitled:  Response to BCBS/IOSCO Consultation Document by GFMA, AFIRE, ASIFMA and SIFMA).  We will come back to this in a later commentary, but today let’s focus on officialdom when the often intentionally obscure or misleading Orwellian doublespeak of politics and policy achieve its higher expression.  Is it getting worse?  Well, it’s certainly not getting better.
Continue Reading Breaking The Code

With apologies to Jerome Kern and Oscar Hammerstein, and in the afterglow of a relatively amiable final AB Rule, we are reminded this week that our business remains hogtied to a regulatory establishment that can’t seem to stop regulating.  When a member of the regulatory apparatchiki hears someone observe, “Well, if I don’t get out of bed, I’ll never be in a car accident,” he or she starts thinking, well, maybe…a nice little rule could do wonders…!
Continue Reading Liquidity Coverage Ratio Rule: Birds Gotta Fly, Fish Gotta Swim…and Regulators Gotta Regulate

I’m getting pretty annoyed at the calumny heaped upon “complexity.”  Everyone wants to “hit the ball down the middle of the fairway”; “keep it simple, stupid”;  “Stick to the knitting…”; “Plain vanilla only, please.”  Don’t do anything not in the precedent.  Oh, please.  Okay, I’ll admit I’m talking my book here, but this is an inapposite choice of chief villain for the little morality play called “What Went Wrong.” 

There were plenty of dumb things done in the capital markets before the Late Unpleasantness.  There were indeed some deals and structures that could not be easily understood.  There were some bad choices made about, shall we call them, “opportunities” presented by the application of super complex rating criteria.  Then, of course, complex machinery was sometimes left in the hands of those ill equipped to manage it. 
Continue Reading Complexity Is Not The Enemy

We at Crunched Credit have taken a bit of a pause of late.  It is, of course, the dog days of summer.  But it’s time to get back into the fray.  Let’s start by noting the doldrums seem to have taken a pass.  From where we sit, the markets seem to be in robust health.  As we look over this complex web of transactions, deal structures, innovations, capital flows, business plans, business goals, failures and successes that is our market, things look pretty damn good.
Continue Reading A Mid-Year Report Card on the Commercial Real Estate Capital Markets

Moody’s published a piece the other week that analogized credit quality in the CRE capital markets to the boiling frog – that if you put a frog in cold water and slowly raise the temperature, it never jumps out until it, pardon the pun, croaks.  Tad, please tell me you never actually tried that in your youth.  I may have done some things as a 12 year old that might have led to questions about whether I was entirely well adjusted, but I never boiled a frog.  Do we know that it even works?  What a great MythBusters episode.  PETA would have a fit. 
Continue Reading Ribbet – The Green Cassandra of the Capital Markets

The Financial Times reported on April 2 that the Eurozone Banks continue to load up on sovereign debt; generally, the debt of their respective host countries.  A few days later, the Financial Times reported a bevy of talking heads crowing over the end of the EC financial crisis.  And then on April 16, the European Parliament voted to approve a slew of new laws for the EU banking marketplace, including a single resolution mechanism so comprised to be almost useless and a common rulebook for winding down the banks.  Does anyone here or there think any of this really matters?  First, it’s going to take years to generate the rules that this legislation birthed and even after the Euro apparatchiki spend years creating detailed rules, the dynamics of Brussels will ensure there will be so many loopholes it would make a block of Swiss cheese blush.  Moreover, does anyone actually think the various nation states will honor these rules if a champion bank is in trouble?  I, for one, do not. 
Continue Reading EU Banks –Dog Bites Man, Again