Month in review, July 2009
[Previous Months In Review available here: Jun 09, May 09, Apr 09, Mar 09, Feb 09, Jan 09]
“The solution is its salesware”
The month’s most important post came halfway through, a mantra I’ve been chanting for years now: The solution is its salesware:
‘I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.’
Through the Looking-Glass, Lewis Carroll
The Wright Brothers couldn’t get venture-capital funding for the airplane.
Turned down again …
IBM thought the personal computer a toy.
For serious computing, you boys will need big iron
Facebook emerged out of a college dorm.
Want billions, kid? Put on some shoes
In each case, until the thing existed, nobody could buy it, and thus you virtually couldn’t sell it. To sell it, you need salesware, and the only good salesware in such cases is the thing itself.
The solution is its salesware.
Housing touches the richest and the poorest, so everyone in the world will have a connection to “Housing the Future,” a BBC World Debate in which I featured, and which you can view online here. Highly recommended, and not just for my gesticulating self.
Not for my looks, either
During July, I inaugurated a new feature, Great Posts By Others (GPBO), designed to highlight provocative pieces worth your attention: Great posts by others (GPBO) 01: Introducing a new series, and GPBO 02: Pyramids, promises, and public transportation:
Rummaging about in Chapter 1 (available as a .pdf for free download), I found this useful listing of ‘business-school’ fallacies:
Prahalad and Hart (2002: 57) explicate six of such, often false, assumptions:
C. K. Prahalad is the doyen of BoP thinking, based on this book
1. The poor are not our target consumers because with our current cost structures, we cannot profitably compete for that market.
2. The poor cannot afford and have no use for the products and services sold in developed markets.
3. Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology.
4. The bottom of the pyramid is not important to the long-term viability of our business. We can leave Tier 4 to governments and nonprofits.
5. Managers are not excited by business challenges that have a humanitarian dimension.
6. Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid.
All this is incredibly thematic with AHI’s work, so we’ve ordered a copy.
Even as the market ecosystem reinvents itself after the shakeout, whining arises from many quarters, such as the appraisers in Value chain growing pains?:
As I posted previously, contact between an interested and a disinterested party isn’t necessarily improper; it may be the lifeblood of accuracy.
At my for-profit company, we do valuations of complex structured interests. After making our initial data request, which includes a comprehensive checklist of information we think relevant, we also invite our customers to provide any information they think worthwhile for us to know. Unless the circumstances are unusual, we also give our customers a chance to look at and comment upon our draft, and to provide additional evidence. This creates an intellectual argumentation, where the client is advocate for its view of the right value, and we are judge and jury of what we think is the right value.
Such contact also allows influence to be brought to bear:
Make up your own mind
Previously, brokers order the appraisal before submitting the loan application to the lender – and often, critics say, those brokers would pressure appraisers to come back with higher valuations.
Naturally that pressure will be applied, and the expert has to be intellectually and morally tough:
For this tension to yield improved (more accurate, more thoughtful) results, we as valuation experts have to be strong enough to repel improper suggestions and to resist flimsy or unsubstantiated argumentation.
Evidently, many appraisers were suspected of being weaklings.
And proud of it!
Also complaining were residents and local officials –
“Mine! Mine! Mine! Mine!”
– seeking to force a lender to become a de facto landlord in No landlord at all: Part 1, the vanished landlord, and Part 2, the present lender:
That’s not enough for Senator Schumer:
“Fannie helped create this problem, and they have an obligation to solve it,” said Senator Charles E. Schumer, Democrat of New York.
Someone’s at fault, and Senator Schumer wants to know who
Just how is Fannie Mae responsible for this problem?
Fannie Mae does not own the building.
Fannie Mae has never owned the building.
Fannie Mae has started foreclosure proceedings [in March, 2009 – Ed.].
As such, Fannie Mae has no legal authority to operate or improve the property.
In fact, Fannie Mae did not originate the loan – it bought the loan from the original lender.
We’re clean!
What then is the basis for the Senator’s complaint?
Unhappy too were elected officials seeking mortgage-restructuring relief for their constituents in Won’t or can’t? Part 1, who should be relieved?, and Part 2, how fast a fix?:
Won’t, can’t … or shouldn’t?
Mr. Meola says complaints spiked after Saxon took over a portfolio of 80,000 loans from a troubled rival in 2007.
No good deed goes unpunished.
We’ll make your loan conform
The prolific Lucian Bebchuck fired off another salvo in his continuing besiegement of executive compensation, this one of interest because it highlighted a potential reason why the PPIP program never got off the ground in the cost of calling off the dogs?:
In any case, whether it’s logical or not, waiving the necessity to write down long-term debts – still performing, don’t forget, otherwise they’d have to recognize an impairment now because of the non-performing or default status – calls off the dogs.
Together, the policies adopted by accounting and banking authorities strongly discourage banks from selling any toxic assets maturing after 2010 at prices that fairly reflect their lowered value. As long as banks don’t sell, the policies enable them to pretend, and operate as if, their toxic assets maturing after 2010 haven’t fallen in value at all.
Let’s pretend our assets are all grown up
While the market for banks’ toxic assets will remain largely shut down, we are going to get a sense of their value when the FDIC auctions off later this summer the toxic assets held by failed banks taken over by the FDIC.
An excellent point – there will be some data. How comparable will it be depends on whether the assets sold are similar to those still held. But I’ll be watching with interest.
If these auctions produce substantial discounts to face value, they should ring the alarm bells.
Yes.
Are they about to ring?
Although as far as I know Professor Bebchuk hasn’t yet commented on Treasury’s approach to selling the glass financial menagerie, I’m sure he’s interested in it:
One approach to valuing anything odd is to auction your headaches, but as in divorce, when the current holder(s) both know the asset well, a pre-auction negotiation is effective – and that, has been structured in to the TARP repayments that will be forthcoming shortly:
WASHINGTON — Now that large banks have started paying back government aid, the U.S. Treasury Department is shedding light on its process for negotiating warrant repurchases with banks, saying Friday that it has developed “a robust set of procedures” to protect taxpayers.
Strong enough to protect taxpayers
Treasury Friday released a packet of documents that explain the warrant repurchase process.
As an exercise in procedural negotiation, the TARP warrant repayment is an illuminating case study:
We’ll admit you, but then we’ll have to kill you
Reality is the raw material of theory and innovation, isn’t it? At least it’s the raw material of blog posts, such as Employer-assisted housing: Part 1, the how, and Part 2, the why:
Employer-assisted housing encompasses both rental (as in Vicarage of the church of football) and ownership; it touches hard debt, hard equity, soft debt, soft equity and subsidy; and because it involves people in two parallel enduring economic bonds, employment and housing, it raises touchy questions about dependency and exploitation.
But it was the $7,500 from her employer, the
Just the edge I needed!
What stake does the employer have in its employee owning this condo? One can quickly think of three reasons:
1. To reward employee loyalty.
2. As golden velvet handcuffs to discourage job-hopping.
3. To protect the neighborhood around its campus.
“Without the loan, it would have impacted how fast we could renovate,” says Morin, 25, of the foreclosed property she shares with Hillstrom, her 27-year-old fiancé, who is studying for his doctorate.
Moving a property out of foreclosure emptiness and into employee occupancy has to be good for the value of all other U Chicago property.
We take our own environment for granted, unremarked and unexamined, until we’re forced to explain it to others, as I did in US property taxes: Part 1, local tax = local autonomy, and Part 2, local autonomy = local initiatives:
In light of all that, how do the
)
Through the looking-glass: two ways of taxing
In short, I told my hosts, from what I could see of the US, and what little I understood about Ireland, a move to a recurring real estate tax on residential property would be wise – and the only way to do it without committing political suicide would be to connect it directly to increased local autonomy over visible local services.
Local autonomy is desirable only when the local economy is viable, and when it is contracting, a town like
As the world globalizes information – which also implies globalizing capital – we observe a mobility of labor unprecedented in global history. With that labor mobility comes the ebb and flow of people and money – people moving to cities to earn money, then sending that money ‘back home’ (wherever that may be), via capital’s underground river of remittances. Although remittances are unquestionably a good thing, and among the largest forces driving slum upgrading in the global south, for every bright new invention there is a dark side. One dark side that I’ve already profiled is human smuggling and extorted remittances. Another is demonstrated by this Jenara Nerenberg article/ post from The Next Billion:
To serve Nepalis? Nepalis returning to
In Development and Base of the Pyramid (BOP) circles, we often discuss remittance economies and innovative ways to send remittances home; what we don’t always think or talk about is what forces people to leave their home countries in the first place and what they experience when they go abroad.
To someone from a rural area, the job might as well be on the far side of the Moon – a completely alien, hostile environment, and one embarks on the journey in a state of excitement, hope, and trust.
Off to a great new adventure, honey!
The lure of earning money abroad is among the most powerful of vaporwares.
To serve man book
Handbook of a multi-planetary conglomerate?
One needn’t journey to the moon to find occluded and invisible universes, such as Tthe slums inside the big bad blocks: Part 1, blame the architects:
If we design the buildings, ran the architects’ grandiose reasoning, why not design the whole city?
Here the group discussed concentrated on principles of “The Functional City”, which broadened CIAM’s scope from architecture into urban planning. Based on an analysis of thirty-three cities, CIAM proposed that the social problems faced by cities could be resolved by [1] strict functional segregation, and [2] the distribution of the population into tall apartment blocks at widely spaced intervals.
Although arrogant nonsense, it helped (grotesque thought) that the world was then distracted, first by a global depression that led to an infatuation with the ‘efficiency’ of Fascism (the Lewis Mumford vision) –
[Le Corbusier] drifted into a fascist-like philosophy and his and similar authoritarian architecture is often seen as the backdrop for fascist political thinking.
– and then by its bastard offspring a global war, leaving the intellectual field empty for Le Corbusier, who sat out the war from the comfortable perch of Switzerland:
Have we got our relative importance clear, common man?
Always remember, dear reader, the solution is its salesware:
At AHI, we invent new financial program, products, and participating Mission entrepreneurial entities (MEEs) that do not exist in the country where they’re needed. That’s our niche, our unique value. We observe a country’s housing finance ecosystem, describe it typologically and taxonomically, compare it with all the other countries and times and programs in our experience (of which the US is a rich source of experiences, since we’ve done more, for longer, with more variations – fifty states, baby! – than anybody else), and propose a sui generis new solution.
We constantly face the challenge of disbelief; in fact, we face the challenge that our listeners believe what we envision is impossible.
Croquet with hedgehogs and flamingos? Impossible!
Seeing is believing
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