Rick Jones

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‘Tis the season and I think it’s way overdue to put in a good word for sunny optimism.  It’s been a while since the Golden Turkeys, and I apologize for being offline.  This having to work for a living gets in the way of serious bloviating.  Here is what is bothering me.  The overall tone of the national dialogue as mediated through the mass media seems overly dark and bleak.  The Sunday talk shows and the business press seem to deliver day in and day out an entirely untoward and, in fact, largely data free bias toward pessimistic outcomes and gloom.  I think that’s wrong (so I’m really writing about how stupid and obdurately mule-headed, faux sophisticated pessimism about virtually everything really can be, but ode to that made for an awkward title.)
Continue Reading Ode to Optimism:  I’m Proudly Bullish (and not embarrassed to say so)!

As is our tradition here at Crunched Credit, each year, about this time, we award our Golden Turkey Awards.  Once again, I must say that we are utterly blessed with so many worthy candidates. The truly deserving have once again wrangled with vision and astounding persistence to earn a spot on our acclaimed list.  To…

Back in the febrile, hyperventilated times that birthed the Dodd-Frank Wall Street Reform and Consumer Protection Act (blessedly known simply as Dodd-Frank), one of the issues that energized the activists’ intent on “fixing” what was wrong was the notion that the ratings agencies were complicit in the overpricing of financial assets.  In a “want for a nail, a shoe was lost” sort of way, overpricing of financial assets caused asset bubbles which led to or exacerbated the apocalypse.  The culprit?  The issuer pay model by which the issuers which retained the ratings agencies to rate their securities paid the ratings agencies’ fees from the proceeds of the related securitization.  From a certain perspective, this was having the prisoners hire the guards.
Continue Reading Ratings Agencies in the Crosshairs

Last week, the U.S. Department of the Treasury released proposed rules providing tax guidance around various LIBOR replacement issues.  Long anticipated.  The defenestration of LIBOR will leave considerable broken glass in its wake.  Perhaps just so the tax professionals wouldn’t feel left out, the end of LIBOR will create a series of tax problems.  Very briefly, changing the price index of a loan, and certainly a mortgage loan, might be a significant modification under the so-called 1001 Rules.  The result of that?  Without a fix from our friends at the IRS, that change may be deemed an exchange of an old financial asset for a new one, creating potential gain or loss, violating the REMIC requirement that pools be static and violating the provisions of the REMIC rules.  Obviously, those adverse consequences under the tax code were not intended by anyone and it would seem that we ought to get a simple fix.  Changing the index is not a significant modification and therefore none of the other follow-on bad things happen.  The end.

While, as we’re sure everyone knows, it’s not that simple and the IRS, instead of saying, “you got it fellas, we’re good,” has given us 50 pages of new regulatory code speak. We suggest that you read our OnPoint and we certainly invite you to read the release, which is subject now to public comment, because it is critically important that we get this right.  Here’s a spoiler alert, while the proposed rules basically work, they do create problems and issues which we urge the industry to address to see if we can get this right before the proposed rules go into effect.Continue Reading Proposed Tax Rules on LIBOR Replacements Answer Some (But Not All) Questions

Long ago, I read a book by a man named Herman Kahn, one of the founders of the Hudson Institute and a well-known public intellectual.  The book was entitled On The Year 2000.  (He was more famous for that truly uplifting missive, On Thermonuclear War.)  I suspect I didn’t understand a lot of it, but I was jazzed by this apparently serious effort to peer into the future.  How cool!  Mr. Kahn was an interesting character; think of a banal-looking, rotund academician, who talked about nuclear annihilation like I discuss box scores.  He was, in fact, an inspiration for Stanley Kubrick’s Dr. Strangelove and for General Jack D. Ripper’s famous line in that wonderfully dark comedy, “Casualties?  50 million…tops!”  A father of US nuclear deterrent strategy and a considerable intellect, he actually got much of what he thought of the Year 2000 wrong, but in a fun way.
Continue Reading Welcome to the Future

We seem all atwitter about the notion that a recession is about to happen; almost aroused by the prospect. A NASCAR crowd just waiting for a crash? Or is this a Waiting for Godot thing, as the chattering class bloviates excitedly, pointlessly and largely cluelessly? Maybe it’s the 24/7 news cycle at work… Did we run out of car crashes, shootings and natural disasters and needed something to rivet and terrify the unwashed? Or is this just politics? For obvious and entirely understandable reasons, every Democratic wannabe presidential candidate is desperately hoping a recession will arrive before the election. But to be honest, a lot of serious types motivated neither by a political gloom premium, weak ratings nor an affinity for NASCAR, seem to be talking it up as well, clinging to the recession on the doorstop narrative, no matter what (God, guns and macroeconomic theory?).
Continue Reading Panting for a Recession

With apologies to Madeline Kahn, in this case, it indeed is twu, it’s twu! The CRE CLO technology is maturing and evolving into the stable, match term, non-recourse, non-marked to market, dynamic portfolio lender lever technology that its fans (me among them) always thought that it could be. It’s just taken some time.

Tainted by the wildly different, and in hindsight entirely zany, CRE CDO securitization from before the Great Recession (most, but not all, of which died ingloriously before that recession was over) and after having creeped back into usage in the marketplace between 2012 and 2016, the CRE CLO as a technology to securitize whole mortgage loans is finally maturing into a stable and useful tool in the toolbox of the portfolio lender. Growing from a handful of deals in the period 2012 through 2016, total CRE CLO production was around $15 billion; in 2017 it was $7.7 billion; in 2018 it was $14 billion; and in 2019 it would appear to be on track to perhaps be a $20 billion securitization market. Ignoring for the moment black swans, orange swans, dictators, Brexiteers and sundry other loons on a mission to derail our economy or the modern world writ large, the CRE CLO market sector should continue to grow at a respectable pace with only the obligatory brief respite shared by all structured products, during the next recession, whenever it might occur.
Continue Reading Like Bonds, But Not Bankers, the CRE CLO is Maturing

The US economy is about to pay the butcher’s bill for a massive disruption of worldwide financial markets resulting from the elimination of the London Interbank Offered Rate, or LIBOR.  And, we are doing this on purpose.  It seems the denizens of the heights of our international financial fabric felt they had to do this in light of the discovery that a handful of bankers had unlawfully colluded to cause LIBOR to be mispriced for their personal advantage.  As Captain Renault said, “I’m shocked, shocked!”  This was so bad that we had to blow up the LIBOR index upon which trillions of dollars of financial assets are based?  While bankers behaving badly is a problem, why are we punishing markets because our banking regulatory cadres failed to prevent bad behavior?  At best, this is a monument to irrational rectitude.
Continue Reading Killing LIBOR: A Victory for Irrational Rectitude

Just a few short months ago we took on the breathtakingly ill-conceived Current Expected Credit Loss (CECL) standard that the Financial Accounting Standards Board (FASB) proposed to implement starting in 2020.  CECL will require major shifts in the way lenders model, forecast and reserve for future losses.  It would materially drive up capital requirements, impair earnings and ultimately drive spreads higher to the borrowing community.  And by the way, it would be pro-cyclical.  If we were actually going to do these things (and we shouldn’t), an unelected financial standard setting committee is surely the wrong party to hold the pen.

The lending community screamed bloody murder, and for good reason.  Luckily, the small banking community was at the forefront on this cri de coeur.  While the money center banks may be one of our pols’ favorite whipping boys, everyone in politics loves the small banker (visions of Jimmy Stewart dancing in their reptilian brains) because those bankers made loans to their constituents, support their local community and, oh, by the way, made significant political contributions.Continue Reading Beany & CECL – Episode 2

In order to avoid burying the lead, let me tell you where I’m going here.  The CRE securitization business is in trouble.  We need to throw out what biologists call the punctuated equilibrium, where once a system initially stabilizes, it thereafter changes little and resists radical change.  Elsewise, our business is at very material risk of irrelevance.

But to give you some time to mull all that over, let me set the table first.  I’ve been worried…Continue Reading It’s Time to Fix Securitization: Are We Dinosaurs Staring Into the Tar Pit?