Anyone see signs of a slowdown in Manhattan?

Unnamed: 5% of nyc jobs, but clearly the purchasing power is much higher, and with city and state tax the deductions are obviously more attractive. My anecdotal evidence is that a substantial number of my peers in IB put their bonuses to work in real estate. Admittedly I don't work for one now (I'm in prop trading), but of the dads in my son's playgroups 9 out of 10 are either in IB or support it in some way, and they all live in lower manhattan. I have a very hard time believing their impact is 0. It's certainly not 100%, but it's far above 0.

dtown - it sounds like you need a broader group of friends. How boring must it be hanging out with all iBanking wankers.

You say you are downtown you must mean FiDi. I also live Downtown in the LES and dont have any iBankers or iBanking supporters in my circles. We are all creative types, TV law, digital media, artists, writers etc.

People in the financial industry have a myoptic view on NYC and obviously think that iBankers have a huge impact in this city. Well they dont. Not by far.

We would probably pay more for apartments in Manhattan if there were less iBankers around.

petrfitz - interesting and a fair point, though in my pathetic defense I would call them acquaintances =). I have plenty of friends who are outside of finance, and they're struggling to rent, not buy. You're definitely right I'm overly focused on fidi and the uws, though 2 of my coworkers live in the LES (the young single ones). There are plenty in finance there too, but they don't carry themselves like IB (to stereotype).

I guess what I have a hard time with is people talking about the ultra-high end. It really seems that section has a large finance representation. Like it or not, they are a big part of it.

I have never believed that either investment bankers or foreign buyers have been responsible for significant increases in real estate prices in Manhattan other than their indication of the general economic condition and the boom times that we have had over the last several year.

However I have felt that the leading signal of the turn downward in Manhattan real estate prices would be when the perma real estate bulls on Street Easy began to claim that a downturn in Wall Street or Foreign wealth would not impact New York Real Estate prices.

...and of course a credit crunch will have no impact whatsoever on the growth of those bountiful "creative" businesses that are the true engine of the local economy, because they run on cash and never tap bank lines or the capital markets.

Talk about "myoptic".

Okay. So now I'm clear: collapse of investment banking houses doesn't matter either. Credit contraction, plummeting stocks, inflation fears, the dollar being beaten to heck abroad, oil at $110+...none of it means anything. It is just amazing. Nothing matters. It's all going to just keep rolling along. To borrow someone else's words, the clouds will part and the skies will open and the choir of angels will just keep singing.

I am not one who thinks it is all over forever or that in a year we will have to number our Great Depressions as we do World Wars. But people, honestly. At some point the writing is more than just on the wall. We are in for a period--a year, two years, three years--of some pain and to think that in the maelstrom the only island of calm will be NYC real estate sounds absurd. Are you listening to yourselves?

"We would probably pay more for apartments in Manhattan if there were less iBankers around."

The one thing I think we can all agree on is that we'll get to test that statement. I have my doubts it's true.

My observations on the Upper West Side is that there have been more apartments that I would consider buying at their current price in the last one and a half months of open houses than I had seen in the previous 1 1/2 years. (2BR / 2 BTH, 1-1.25M)

More importantly for the properties that I have visited above 1.25M I was typically one of only 2 people who visited the place.

And I have received calls from more than 5 brokers for properties I have visited since January. I had recieved one call in the entire time I was looking before. They are both telling me of price flexibility and trying to drum up business for other properties.

In short I am seeing lower prices and more anxious brokers.

To add to kylewest's and dtown's observations. I do not make my living in investment banking nor do I do business with investment bankers. But I have seen many friends since the new year who work in investment banking and they all without exception say how brutal their business is.

This to me a key indicator as to the uncertainty that those of us not in investment banking will face. This has to have an impact on the number of qualified and willing buyers in NY. Whatever industry you work in.

Petrfitz: "We are all creative types, TV law, digital media, artists, writers etc."

Ha ha ha - good one: TV LAW = creative. You are the one in TV LAW, right? Hah ha ha ha ha hah!

Actually, that stretch was pretty creative of you (for a lawyer)!

Now wouldn't it be ironic if the Dow ended higher for 2008 and the average Manhattan apt price was higher as well. Even if this occurs rest assure there will be those on this board who will continue to dispute the numbers no matter what the end result will be.

Yes, we agree on this Spunky. It would be ironic. That is, if we both understand irony in this context to mean a result contrary to expectations.

kylewest I believe you know very well that those who own apts in Manhattan are for the most part financially well off and don't have to cut their price. If they can't get what they want they will just take it off the market. Those that need to are for the most part are owners of crappy apts in crappy buildings, with crappy amenities and crappy layouts, and crappy views. Now you probably will get those people to lower their price but do you really feel you are going to get an apt with beautiful views, great layout in a great location at a discount. If you do let's know about it

A comment re: "the plunge" in Miami. I live in Miami. Sold my apt in NYC 2 years ago and moved here and bought. No question that this market is not in good shape, but it is beginning to get better... despite what popular banter indicates. Maybe my view is self-serving, but I will try to explain how I see it, as a Miami resident and try to explain why NYC is COMPLETELY different and should never even be uttered in the same sentence as Miami when predicting market moves.

Miami was severly overbuilt, the population growth expected didn't quite reach the projected levels and for all of the reasons we all know, prices were bid higher and higher for a long time, mostly in speculation by investors.

When I moved here 2 years ago, I refused to buy in a new construction building and bought in an older building. Prices have dropped swiftly in resales of new condos, because people cannot close on them- or cannot rent them to cover costs- defaults in these buildings are huge. You can almost name your price in these buildings. BUT, who wants to? Even if you get it for free, how will the condos be maintained by 3 owners. Costs must get shared. Even buildings who were lucky enough to have a number of closings before the real collapse happened, I understand from what I hear from friends and colleagues, have people not paying their monthlies and as a result are going into foreclosure (most of the buyers had bought to flip and couldn't afford the condos in the first place).

This collapse is slightly different in the older buildings - such as where I own. While prices have reduced somewhat the drops are not as drastic. People have owned here for years, and dont have the high mortgages and were not speculating.

NYC is by far quite different. From what I've seen, a large percentage of the condos closed are new construction... the older co-ops and condos have seen slower sales for a while. Prices are being reduced to reflect more realistic asking prices, and when they are realistic, the properties sell. THere are buyers. There are folks like me, and many of the posters on this board, who are waiting for the right opportunity. I don't know yet what that will look like for me... but I do know that NYC is a bit of a unique animal and does not follow the same experiences as the rest of the country.

Salaries are higher, space is limited - so no infinite building possibilities, culture is big, diversity is huge, it is just a completely different animal attractive to so many different population sectors- artists, bankers, lawyers, foreigners, chefs, whatever.

I have said in previous posts, and reiterate my own opinion on NYC real estate for what it's worth: Now is the perfect time to buy in NYC if you plan to live in your apt for the longer term. If you are buying for investment or think you may not stay for a while, don't buy, rent.

Why did I buy in Miami at the peak of the market? No, I am not fool, I knew it was going to pop. I simply also knew that I wanted to live in a place that I would call my own, and plan to own it for a long time. To rent, would never feel like "home" to me. I wanted to renovate, and create my own living space that was mine. I did, and while if the market went up I'd be happier, I am extremely happy and at peace with my decision.

Now, I'd like to circle back to my opening statement, which I know may seem a bit contrary to the scuttlebutt out on the street. That things in Miami are "beginning to get better". Someone in an earlier post mentioned 'equilibrium'. That is a wonderful word, and is EXACTLY what everything physical and non-physical ultimately seeks. Miami included. What is beginning to happen here is that there are bottom feeders who are now buying these condos at large discounts. But they are being sold. I understand that these are wholesale buyers, not individuals. My buddy who is in construction (unfortunately) was just offered a very large sum of cash for all his inventory in process... this is a good sign. Condos in older buildings are selling when priced fairly. The market is finding it "equilibrium". NYC will find it too. In the meantime, I will keep watching, since I do not need a place to live in NYC... but I will buy when the right opportunity presents itself because I spend 1/2 my time there and ultimately want my own space there as well.

I love reading the drama-filled posts because they provide interesting arguments to ponder and an opportunity for me to realize how lucky I am not really needing to take a stance at this moment, yet poised to do so at the right moment. BTW, I am a banker. I just got my bonus. It was great. Only mention this in the context of there being two sides to every point being made on here. Good luck to us all because as with everything else in life, a little good luck never hurts. Cheers!

Spunky: I don't think dramatic drops to, say, 2002 prices are immenent. You know that. But I do think that cooling and some slide downward is likely even at the better-quality end of things. I disagree that people who own the better stuff have money and therefore don't have to move, so won't put their places on the market while the market is down. Even monied people must move often to get on with their lives. In fact, they have more leeway to do so by virtue of their money. For example, many couples move into very high-end one bedrooms on say lower Fifth, and then start families. That dining alcove may be fine for a crib, but you go out of your mind once that baby grows a bit. Now they get pregnant again. That couple can't and isn't going to wait for the market to pick up. A family of four in a one-bedroom needs to move. If they have money, they can afford even more to sell for less than the top of the market. Similarly, people are always being transferred, wanting to trade up, move in with a girlfriend/boyfriend. You can't put your life on hold because real estate is down 5-20%. And once you are in the market, it matters less how the market moves since you sell and buy in the same market...sell for 15% less than peak but also then buy something that costs 15% less than the peak. It's a wash in most ways. And just because something sells at 10% less than the same line did a year ago, given the run up in the last decade, it's still a great profit for the seller and hardly a steal for the buyer. It's just things settling down from the frenzy which might not be so bad in the end.

Spunky, your “crappy this, crappy that” comment was so simple-minded and elitist I don’t know where to start. The majority of Manhattan apartments simply have a view of the building across the street, unless you think the thousands upon thousands of windows we all walk past every day are actually a minority. Most don’t have doormen, pools or health clubs. In fact, most don’t even have elevators. Yet in most of our neighborhoods, we have plenty of options for exercise, laundry, food and entertainment within a short walk of our homes.

Most people in Manhattan did not buy their apartment in or after 2005, so if they are compelled to move for any number of reasons, they can sell their places at well below 06/07 prices if need be and still make a decent, possibly substantial profit.

Interesting article in the Real Deal... general consensus seems to be more buyer negotiation, flat prices, increase in inventory, slight slowdown in sales.

http://ny.therealdeal.com/articles/power-shifts-to-buyers

It was pointed out on another thread that manhattan apartment inventory is over 6,000 now and that it went up by 700 in the last month or so. Is this true? If so, that's huuuuuuuge.

Thanks for that post, Will.

I wouldn’t be surprised if we start seeing broker-babble change from the now-finished “Buy now or be priced out forever!” to “It’s a buyer’s market! It’s a great time to buy!” in an effort to get transaction numbers up, even if prices and per-unit commissions are lower.

faustus, according to UrbanDigs' StreetEasy-based numbers, yes. These were the figures he gave on p14 of the Idiots thread:

DEC - about 4600
NOW - about 5930

That was 6 days ago.

Historic low unemployment... inflation under control as of yesterday.... Fed determined to maintain fluidity and financial market stability... the Frank bill helping out homeowners who can't afford mortgage interest increases... historic stock market rise on Tuesday.... interest rates, albeit rising, still at historic lows.

Just wanted to point out some good data points! No doubt we're in for a bumpy ride the next two quarters!

Actually, I think it is a good time to buy if you're in it for at least 3-5-7 years. You just have to have a strong stomach if you read and watch the news the next year or so... especially if you're like me and you compulsively read the WSJ and CNBC, and especially Street Easy!!!

Will - can I have some of your weed?

"Historic low unemployment..."
- Wall Street seeing a downturn worse than any in the past 20+ years. Banking business at a standstill. Hordes of layoffs already and on the way. Bear Stearns, one of the most well-known brokerages in the world, fails after 90 years in business (including the Great Depression).

inflation under control as of yesterday....
- If measured by CPI, which is basically the price of PCs. If measured by the stuff we need and buy every day of our lives, inflation is out of control.

Fed determined to maintain fluidity and financial market stability...
- At the taxpayer's expense

the Frank bill helping out homeowners who can't afford mortgage interest increases...
-At the taxpayer's expense

historic stock market rise on Tuesday....
- Are you joking? That only brought the market back to where it was the prior Thursday. Also, did you sleep through the rest of this week? Bear Stearns failed - it's in the papers. Also, the Tuesday rally was fueled by a Fed move that was meant to forestall a Bear liquidity crisis, although nobody knew that at the time.

interest rates, albeit rising, still at historic lows.
- Except you need to walk on water to get a loan. And you'll be raped on a jumbo.

Other than that, Will, I'm with ya!

Thanks for your support, Faustus. I am working on my novel about the Clinton restoration, "A Return to Hope."

PS/I'd really prefer subsidizing keeping Americans in their homes than forcing Iraqis out of theirs. Maybe it's just me.

Will - no problem. As for the Frank plan, god help us. Who's going to pay for that? Are we just going to borrow again to pay for that? Should we just print more of that green stuff? Should we just tax prudent Americans to pay for others' mistakes? If we're going to raise taxes, shouldn't it be to fund the impending colossus of the Medicare/Social Security deficits rather than blowing our load on buying other people's overvalued houses? Or should we perhaps allow cycles to run their natural course? Anyway, this is a much lengthier discussion.

LP1, I wrote this before reading Will’s Real Deal article, which I think answers your question pretty well, but here it is:

Regarding your original question: Within my specific search parameters, in one of my choice neighborhoods (East Village), yes, there are some properties currently priced below comps. Though as I think about your question, I realize that I have a lot that keeps me from investigating a property thoroughly enough to make it to the comps, and I suspect that that is the case with most who are looking. For example, I get many emails from Street Easy each week noting price drops. They're all within my search parameters, but I wind up not looking further into a lot of them: they don't accept dogs, I don’t like the block, the maintenance is too high, wrong layout for me, higher floor walkup than I'm willing to accept, etc., etc. However, price drop emails have definitely increased in frequency starting in late-2007, as have new listings, but I rarely continue to investigate the ones I'm passing on, so I don't know how they compare to comps. I have been investigating comps for additional properties, sometimes outside of my search range, in response to queries here at StreetEasy. What has become very apparent to me is that for properties that are pricing in any kind of substantial appreciation over last year, time on market is way up, and not just in the East Village. I keep seeing ambitiously priced properties conducting a steady series of price chops. I'm curious to see what happens when more of them get below recent comps. Also, your question uses the word “slowdown.” Sales volume is way down, and while inventory is down a bit year-over-year, it is in a fast, steady trend upward. See UrbanDigs’ numbers on p14 of the Idiots thread and yournamehere’s post on the Inventory vs. History thread for this. If you add in the Brooklyn and Queens new development pipelines (most not yet reported as inventory), you might be able to double the current StreetEasy number.

Another thing to consider is the dissimilar behavior of different segments of the market. Pardon the repetition here, folks, but after a quick search I see that LP1’s first post was only 9 days ago, so I’m not sure what he’s read. Many of us here have come to accept luxury/average/marginal as the ranges, and where as marginal properties (brick wall views, 6-floor walkup, needs gut reno, sketchy block, etc.) were flying off the shelves along with everything else until late 07, it really seems over. It looks like people are using their heads again with regards to these properties. Average properties, generally the range I'm looking in, are where you'll see the softening (as opposed to the outright downturn of marginal): price cuts (relative to what, I'm not always sure), poor open house attendance and response, brokers being up front about negotiability, making follow ups, etc.

If you check the Charleston thread here, you'll see that buyers there are flipping at a loss. Other new devs seem to be struggling to keep their asking prices high, as well as the eventual records of sales prices, so talk often turns to the negotiability of transfer taxes, etc. Curbed had a post on this in September of 07:

http://curbed.com/archives/2007/09/13/signs_of_slowdown_in_new_development_deals.php

and I imagine this has only become more widespread (whether it's offered up front or attainable through negotiation) as the market and economic forecasts have turned.

Im with Faustus on this one Will. For 6 months now I've been having arguments about the seriousness of this credit crisis, and even those that used to be bullish, are finally admitting to me that they are now very uncertain. In this side world of mine of ex-traders now hedge fund managers and cds, bond, nat gas traders, that is a fairly negative train of thought for a past bull.

It is very hard to argue that we are in unprecedented times, and while I know its nicer to be optimistic and spin everything positively, missing the overall picture here could result in major losses if you are not careful. Yes, there will be a time to buy for the longer term, but lets at least admit that today 's asset prices (while closer to the bottom that all those that argued this situation many months ago), could still go a lot lower! We STILL do not know how bad decades of credit fueled debt will be unraveled sparked by the falling of national house prices! How deep does this problem go? Its NOT just about subprime anymore, its a complete debt problem and the de-leveraging process will bring the bad stuff out. All in all a healthy natural process, but it will also be a very painful one! Do we really think it ends with Bear, or will there be more?

And for the record, those that openly saw these red flags 6-8 months ago, most likely got defensive, bought bonds, and sold off those equities with direct exposure to this financial mess; and likely saved a whole lot of losses and offset other losses with gains in bond prices as a result.

An interesting article from Forbes...

http://www.forbes.com/columnists/forbes/2008/0310/027.html

Will - "Why the widespread recession fear when unemployment is low, interest rates are low and the Fed is on the case?"

That is the EXACT argument being given since the fed started their actions late in 2007 and with Hope Now and with Rate Freeze, and with 170B stimulus, and look at where we are!

I guess if you keep saying it over and over and over, eventually the turn around will come and they will say, 'see, I told you'! Except you may get killed in the meantime, just like those that said this very same thing 4 months ago!

There's no place like home. There's no place like home.... there's no place like....

Urbandigs, you may be making such a strong but overblown case people will be terrified to do anything. Or at least buyers will be terrified to touch the market.

No offense. You seem like a real smart guy and the national economy is in serious trouble. But dear lord, is the Manhattan real estate market at more risk now than it was on September 11, 2001? I know the national recession is worse and more NYC-based than 2001-02 because of all the banks are being hit hard but I can't believe the Bear S etc problems are worse than the collective challenges of the 2001-02 recession and Sept 11. So yeah, we may see some price declines here or there, but my god, man, don't get us into such a panic! You are scaring me. I think I may sell my place at a loss and go to work at a Starbucks in Salt Lake City. Or maybe I'll just turn my keys into Wells Fargo.

Tony, I think a big difference between now and late 2001 is that recent buyers have paid much more for their apartments relative to their incomes. There are many more condos, and many people in recent years have stretched themselves very thin to pay for them, giving them farther to fall.

Even if the sh!t doesn't hit the fan and the economy stays where it is, I suspect many buyers will be trigger-shy and simply wait on the sidelines until there is some clear sense of direction. The point is that there doesn't need to be an obvious downturn to affect the NYC RE market. There just has to be the threat of one. Economic uncertainty, shaky job security and unclear intrinsic asset values are hardly the conditions in which most people commit to major purchases like a new home.

Yeah, iMom, but I think that there IS going to be an obvious downturn in the national economy generally at least through the fall. My point is some sectors, or parts of sectors, will remain strong. Like agriculture, energy (a mixed blessing), and even certain housing markets, like Manhattan and Seattle. Some people would love our market to crash and burn to open it up to more buyers, and are talking/jawboning it down. It has withstood some really, really big challenges (like jets crashing into its buildings) and has stayed strong throughout. Doesn't mean there might not be some price drops, especially after inventory builds. But I don't see drops being deep or long lasting. Who knows when the best time it is to catch a bouncing ball, when it is going up or down? I just don't think this ball is going to bounce very much, so standing on the sidelines doesn't make much sense in the long run. Yeah, in the short run, you might save a few dollars, maybe even 5-10%, depending on the neighborhood, at some very brief points, but nobody can guarantee this and you won't build equity during that period and who knows what will happen with interest rates.

More analysis on the macro economy from the NYTimes:

http://www.nytimes.com/2008/03/16/business/16fund.html?_r=1&ref=business&oref=slogin

Tony, Point taken. I agree with most of what you wrote, but a couple of comments... The NYC RE market survived 9/11 because the ECONOMY stayed strong. Of course 9/11 was a "really big challenge" to the RE market, but in the end, workers were still getting paid, business was still going on and the economy was otherwise fundamentally sound. Today, we're in a recession (for how long no body knows), people (mainly Wall-Streeters, but people in related industries as well) are fighting to keep their jobs, the ones who do keep their jobs are going to find their bonuses dramatically reduced (or getting paid in stock instead of cash), several sectors within Wall-Street have COMPLETELY shut-down (MBS's, CDO's, any asset-backed securities or securitization of any sort), the availability of financing has been dramatically reduced, and key parts of the economy are so f-ed up that the government has had step in with unprecedented bail-outs. Besides, building a little bit of equity is of no consolation when the underlying asset price has fallen 5-10%. On a $2MM property, I'd rather miss out on building a little bit of equity than find the value of my property now worth $100,000 to $200,000 less.

Tony - sorry, I went off topic there and was really replying to Will's assessment of the economy and NOT Manhattan real estate. Let me clarify my feelings and if you have been reading urbandigs, you know them already.

MACRO ECONOMY - yes, its a big deal and yes YOU should be worried! We are in scary times here AFTER the asset bubble was in housing sector (as opposed to stocks) and the credit bubble burst. With financials at center of this storm, it can get ugly!

MANHATTAN RE - no I do not think we will crash, I guess lets define that as a drop of 40% or so. Yes, some outside markets are getting killed and are down already 30% from their bubble peaks. Yes, I think we will correct but it will be lagging as always. The reason why the uncertainty here is that we know the center of this storm is financials, brokerages, hedge funds, etc..and you know where all those jobs are! 2008 is going to be ugly. 2009 bonus season will prob be ugly too. So, it is setting up like 2008 will be the year the inventory rises and perhaps 2009 will be the year that correction takes place. Speculation of course if everything turns out to be fine tomorrow, but Im not in that camp. I dont expect crash, but certainly I do expect some fundamental shift in inventory & demand that is opposite of what we got used to in the past 3-4 years. Macro economy will fuel this change starting with buyher psychology.

No, Im not trying to scare anyone, but hey, when the market was flying, the media was all over it. You dont see me blaming media for the uprun! Now that things turn negative, its safer if we keep our heads out of the sand and acknowledge whats going on. If the buy vs rent decision is clear (safe job, liquid assets, salary, & timeline to own) and you find a great home that you will live in for 5+ years, go for it. But if those things dont line up, may be wiser to stay on sidelines and away from risk until things clear up and we see damage done.

Sept 11th was a quick hit, get hurt and get yourself back on your feet. 1 year later we recovered. This scenario is way different and a slowdown is likely to be sig longer and rooted in macro fundamentals as opposed to an unlikely terrorist act. So, yes, its very different.

I have to give Urbandigs credit. He has been all over this credit issue for months, and he has been right on the money. Digs, you definitely have bankable insight into the financial markets.
As for Manhattan, some of the fundamentals have weakened, mostly the downturn in financial markets, and sentiment has turned negative. However, I still believe that there is a tremendous appetite for quality apartments in Manhattan, and that the demand for these units comes from multiple streams other than just those who live and/or work in Manhattan. I don't believe that coops have been overpriced, nor are they leveraged with exotic mortgages by insolvent individuals (the boards don't allow that). If there is a buyer that needs to sell, now is the time to get a deal and maybe save 5 or 10% off of last years prices. As for condos, in quality areas like UWS, West Village Tribeca, etc., I don't see those areas taking a hit, nor does the current evidence suggest that, if they built another 15 CPW tomorrow right across the street that it would not sell out for higher prices than the first. Fringe areas will go down, as will new developments in those areas..by how much I don't know.
However, many analysts believe that the next few quarters will bring substantially lower rates for mortgages, the weak dollar will continue to attract foreign buyers, and there is currently low inventory. I think if sellers hang on for a few months, they might be surprised to see that the sentiment has improved and they are in a better position than they may be today.

Finally I agree with Kylewest:

"But people, honestly. At some point the writing is more than just on the wall. We are in for a period--a year, two years, three years--of some pain and to think that in the maelstrom the only island of calm will be NYC real estate sounds absurd. Are you listening to yourselves?"

People are now coming around to what I've been saying for months - we are an island, but not an economic island. Bear Stearns, if liquidated - or mostly liquidated, as is likely - employs, 13,000 people in New York. Lehman Brothers will be next. Merrill has already announced it's basically winding down its disastrous First Franklin purchase.

The fact is, despite low interest rates, nobody's lending to anybody. Banks are realigning their credit policies to the historic norm: 20% down, twice your annual income. As I said before, that means that to buy a median-priced apartment in Chelsea would require $320,000 in cash and an annual income of $850,000. Who posting here makes that kind of money?

Buckster is right about Miami, to a point: New York is not Miami, we didn't have the speculation, the flippers, the overbuilding they had there. To a point. Because Miami went up a lot higher a lot faster than New York, it will fall a lot lower a lot faster than New York. But New York is not exempt.

They said "foreign buyers" in Miami; they said "foreign buyers" in New York. One was a lie. The other?

Then they said Wall Street bonuses and the financial industry in New York. Now that that little "New Economy" misconception has fallen by the wayside with BSC and others, they're ignoring it and thinking of other reasons why these unsustainable prices will stand pat. If you come up with one let me know so I can convince my friend who owns a McMansion in San Diego that he can't offload without a $250,000 hit that he should just put the thing on wheels, roll it over to Manhattan, plop it down and put up an Open House sign: his troubles will be over, and Happy Days will be Here Again!

iMom: I had a place for sale on 9/11. I also work for myself, so recognize a slowdown when there is one. There was a deep slowdown right before 9/11; thing were just starting to pick up around 9/11, when the slowdown resumed and lasted until December of that year. Nonetheless, it was a record year for me at the time. This time, however, the slowdown was from September through December of last year, since when I've been working at a maniac's pace. There is no broad economic slowdown in my opinion, else I wouldn't be so busy.

What there is is recession in housing and finance. Look at the jobs numbers and where the losses come from: building and banking. What there is out there is deflation, despite what the CPI says, because of the stupid way in which the CPI measures "housing inflation" - 40% of all inflation - as "owner's equivalent rent." Housing prices are plummeting - 17% from the top by some estimates and still falling - yet "housing inflation" is increasing because no one can afford to buy so everybody's renting. "Owner's equivalent rent" was a great way to measure inflation until 2000, when, because of the flow of easy money, an historical anomaly occurred: the cost of buying a home became disconnected with the cost of renting one. As that anomaly is corrected and we return to the historical equilibrium, inflation will fall. And as a market develops for mortgage-backed securities, banks will be able to re-mark them to market, and up their value from the current $0 to what they are truly worth, perhaps 90 cents on a dollar. That will give holders of these assets - banks, among others - huge profits. But it's a few months to a year away.

Spunky - I love your optimism!

This isn't applicable to Manhattan (I hope) but regarding foreclosures elsewhere: Has there ever been a "program" where instead of a foreclosure, a bank takes title to a property and then rents it back to the previous owner at market price/rent? I assume that this would have to be a public-private initiative so that there is some federal financial incentive and also a way to partner with approved property management companies so that banks don't need to get into that business. Could be a boon for banks, property management companies and also keep people in their homes or allow for "softer landings."

Sorry if this is off-topic, but I keep hearing people grouse about the Frank bill and suggest more Market-based solutions to keep people from being thrown out of their homes.

They should widen criteria for loan modifications + adjust tax code for housing as an incentive to buy homes that are already 20-30% lower than 2-3 years ago. The problem is inventory/foreclosures. We already have steps taken for easing adjustable rates; rate freeze plan & hope now plan. Loan modifications are occurring but the criteria is too narrow.

Extend primary residence tax benefit for speculative investment as long as the property is owned for 2+ years. So, investors can buy, rent out, and potentially sell later on and get a tax exemption similar to the 2 out of 5 yr primary residence tax incentive. Encourage investment in housing without the moral hazard of bailouts and still allow the correction process and market forces to determine value.

No clear answer, but plenty of ideas. Every one has pros & cons, so we need to find a way to limit the residual consequences and not bail out those that made bad bets.

thx mh23 for the comment.

Hey Will, as a former auditor for Bank of America I can tell you that your plan is illegal - banks are not allowed to own properties for profit unless they occupy 51% of it. That's why you see they only own buildings that they occupy, or they sell a 51% interest in a building to revalue it and stay in it for cheap.

Then, no bank want to do what you suggest - it would require an army of administrators. They want OREO's off their books fast. But you hit the nail right on the head, just what I've been saying for weeks: "rents it back to the previous owner at market price/rent...." That's what has to happen; out-of-pocket carrying costs for renting vs. buying must return to their historic norm, which is that they are identical.

That's where we're headed, and all this "New Economy" talk about NYC being special is nonsense. Prices have fallen here before - not coincidently right after the savings-and-loan debacle of the late 80's - and they will again until they reach their historic equilibrium. Foreign buyers are not going to rush in and save the day; the financial industry's house-of-cards accounting - rating Triple-A securities backed with subprime junk - has collapsed. The industry is dead, Bear is the start.

Frank's bill makes sense: why are primary residences exempt from bankruptcy protection? 401(k)'s are protected; corporations can use bankruptcy laws to shield them against creditors. Only primary residences and student loans are exempt from bankruptcy protection. Why? Who does that actually protect? Seems like the big guy - lets them operate with impunity. You can be sure that if it were possible to protect a primary residence from creditors through bankruptcy, there won't be any more liar's loans anytime soon.

And FYI foreclosures are rising in all boroughs, but especially the Bronx and Brooklyn, where subprime loans abound. It's the same market - when Rome burns, the Coliseum isn't safe. It just takes longer in NY because it's one of the most difficult states to foreclose in, and can take up to a year. Other states, like California and Florida, don't even allow mortgages - check the facts, see what the rules are - so foreclosure is fast and furious. NY is dominated by mortgage loans and co-op share loans, which are harder to foreclose on.

stevehx have you ever thought of starting your own blogsite. Although I find your comments for the most part absurd they are nonetheless entertaining.

Loan modifications = bankruptcy. Otherwise, why would anyone do it voluntarily? (And they're not.) Plus who knows who owns the notes anymore; it's all obscure.

Investment real estate is already favored: subject to long-term capital gains if held for more than 2 years, and NO capital gains if reinvested in another real property. Imagine if stocks had that benefit!

The primary-residence exemption is only for $250k-$500k, so urbandigs, your idea will give investment property less protection than it currently has since it's tax exempt if reinvested.

I don't understand this: "Encourage investment in housing without the moral hazard of bailouts...." If your plan isn't a "bailout," then what is it?

I repeat what I've been saying for months - nothing can stop this correction. Nothing. We can try to make it more palatable and slow it down a little, but until incomes rise to the level where properties are affordable under prudent credit standards, property prices will fall to meet them.

Sorry guys, but there's no way around it. Even bankruptcy won't work, because it's only good for the bankrupt. Everybody else will still have to buy a property based on their income and assets, and that ratio is way out of line right now.

Just to clarify: bankruptcy protection works on the micro level, but not the macro level. It only protects certain individuals and lets them stay in their homes, but anybody looking for a new home still be limited by his income / assets.

Hey Spunk, an insult from you is like a bit of sunshine in my life. You're the property bull - explain why you think I'm wrong. I said weeks ago that the financial house-of-cards would fall, and lo and behold: Bear Stearns! I said weeks ago that property prices would continue to collapse, and lo and behold: down 17% nationally.

If you think Manhattan is immune, state your case, not just your fantasy.

Stevejhx wrote: "the slowdown was from September through December of last year, since when I've been working at a maniac's pace. There is no broad economic slowdown in my opinion, else I wouldn't be so busy." Steve, sometimes I agree with you, sometimes I don't. Surely you're not suggesting your work schedule to be a valid barometer of the overall economy's health. Your comment gave me a good laugh. I can see it now...Bernanke wonders "Hmm, how's the economy doing? I know...let's check with Stevejhx and see how busy he is!!!" Hate to break it to you, but we ARE in an economic slowdown. The Fed has been fighting it (with varied levels of success) all year, with another rate-cut expected on Tuesday. I don't know what line of work you are in, Steve, but I would be amazed if your occupation is an accurate measure of the economy.

iMom, I'm talking about 15 years of experience working as a freelance translator. We're the first to go when times are tough; if there's no business going on, there's nothing to translate. It's been accurate predictor every single time over the past 15 years, so I don't see why it wouldn't be now. I represent a pure expense.

To the point that whenever the stock market goes down more than 10%, my work stops until the market recovers. That was true all the way till October, then reversed itself in January.

Last year, after Shanghai crashed, I had very little work till the end of March. Over the summer, however, when the economy was growing 6%, I worked 7 days a week, 12 hours a day. Then it just died in the middle of September. Died a huge death.

There is a recession in housing and in finance. Look at the job numbers; that's where they're being lost. The real economy is doing okay. Inflation and unemployment are backward looking indicators; they only tell what has happened, not what is going to happen.

The Fed has been fighting a liquidity crisis and a crisis of confidence which CAN lead to a downturn, and a serious one, if no one is lending. Just hasn't happened yet - non-financial corporations have more cash on their books than ever before in history.

I'm saying the crisis in the real economy is over. I'm looking forward not backward. Most of the credit write-downs have happened. Bear collapsed because of a crisis in confidence. Another firm or two might fail or be taken over. But JPMorgan, BofA - the big players - are doing quite well. There's plenty of capital out there, just not for people who gambled on the Las Vegas strip.

stevejhx - you are wrong. You said, "and NO capital gains if reinvested in another real property."

Lets be clear, for investment properties tax code (1031/Starker Exchange) states that gains can be DEFERRED, not exempt, if like kind property is purchased within a period of time after closing on the original investment. Ultimately, capital gains taxes will have to be paid on the investment. I think you need to show intent to purchase within 90 days or something, and close within 180 days? Don't quote me on those #'s.

http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

Tax deferred, as opposed to tax exempt, is quite different. Im saying make investment gains tax exempt, similar to that of primary residence tax code; encourage investment further as inventory is the clear issue here! And you mistakenly interpret my suggestions to mean that I disagree with the notion that this recession is ongoing and its an affordability problem. If you are talking about easing the problem with as little moral hazard or inflation byproducts, what is YOUR suggestion outside of just 'let things happen'.

For the records, Ive stated many months ago to bring on the recession and let the cleansing process begin so we can get through this sooner!

http://www.1031.org/about1031/faq.htm

The like-kind exchange under Section 1031 is tax-deferred, not tax-free. When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.

So, here is the idea I am saying for non primary residence investment purchases:

a) change tax deferred to tax exempt for investment properties sold after 2 years of ownership. If sale is within 2 years, it is subject to similar tax deferred exchange code.

b) If sale is within 2 years, consider widening the time requirement on the exchange from the date of the original sale.

Compared to other plans, how would this change be considered more costly to the tax payers?

The real economy is doing okay. non-financial corporations have more cash on their books than ever before in history. -stevejhx

So what your saying is non financial and non real estate companies are doing well. Those that own or work for these companies are doing fine. Those that are in this category who own apts in Manhattan are doing fine.

Stevejhx you are all over the place I strongly recommend you see someone. You are on a mission to get your point across (what ever that is) and guess what nowhere cares. Your posts are so freaking long and repetitive I hardly doubt anyone reads more than the first two sentences. I retract the entertaining comment they are now extremely boring.I do think you need to go back the home in Long Island you own but don't live in and do some reflection. Then come back to the home you don't own but live in and continue posting your thoughts on the Mahattan real estate crash.

Yes, urbandigs, you are right about the tax code, and I knew that. But if you hold the property in trust or in a corporation, until that trust or corporation is wound down, there is no tax.

It works like a 401(k), except it's taxed at capital gains rates.

How would your change be more costly to taxpayers? Because you would make property tax exempt after 2 years, so there is no more capital gains tax at all. Sounds very expensive to me, and though I don't have the figures just a brief analysis will indicate that such a plan will increase the cost of property rather than decrease it - since capital gains on property would become tax exempt - which is the exact opposite of what needs to happen.

Why would you eliminate capital gains on just one type of gain? Why not on stocks and bonds, too? And why not just get rid of the IRS like Mike Huckabee wanted to do?

I don't know about a recession, but it's time to put prudent rules into place to stop these bubbles. Prudent lending standards should take care of that. There's no way to stop things from returning to equilibrium - I've been saying it for months. Hugo Chavez tried, and now there's nothing but shortages. Robert Mugabe arrests people for not selling goods below their cost to manufacture. That's clever, isn't it? All these plans I hear essentially do the same thing: they try to prop prices higher than the market will bear, just as Chavez and Mugabe are trying to keep prices artificially low.

Neither can be done in the long-term. Keep prices higher, there will be a glut. Subsidize prices - like with liar's loans and negative amortizing mortgages - and there will be a bubble. As soon as the subsidy stops - which is what's happening now - things will revert to the long-term norm. That's all that's happening now, and anything the government does to try to stop it will only lead to more market distortions.

That's why bankruptcy protection is the only answer - it works on a case-by-case, microeconomic basis, does not affect the macroeconomic forces in the economy trying to right prices that are distorted with respect to incomes, and prevents a market collapse by thrusting an enormous overhang of foreclosed properties on the market all at once. If you own an apartment building through a corporation and it goes bankrupt, you can get the terms of your loan altered. But not if you own it in your own name, and not if you live in it as a primary residence. Why can Donald Trump's Atlantic City casinos get bankruptcy protection, but not the small-time real-estate investor?

It makes no sense.

The Fed rescued Bear Stearns to prevent a run on all banks. If they don't do something quickly - and non-voluntary - to stop all these foreclosures in the pipeline, then the market will truly crash beyond what it's ever done in the past.

No Spunk, I'm not all over the place. I've been saying the same thing for months; my view hasn't changed. And all my facts are accurate.

People who own apartments in Manhattan are fine, as long as they can afford them, and as long as they don't need to sell them in the short-term. Prices have gone up too high with respect to incomes, however, and that will be exasperated as lending standards revert to the prudent historic norm. Why should I "see someone" about that?

Instead of insulting people, you should state your case. Why are you bullish on Manhattan real estate? I haven't heard any economic reason why, other than that's what you want to happen.

Exacerbated, not exasperated! Ooops!

I thankfully agree with Stevejhx that I have seen no slowdown in work/revenues in my very economically elastic field. Also have gotten the same feedback from others. We can't argue with bad data points, and we'll likely get some more really lousy ones this week as IBs offer their reports, but there is a lot of okay stuff out there too we should not ignore. Sorry, don't mean to sound like George Bush.

ok so im not a finacial or a real estate expert by any means, im just someone who has been following the 2 bd plus rental and buying market in the fidi for the past couple of years. what we have seen in all the offering plans of converted buildings ( going from rental to condos ) a clause the allows the sponser to only sell a portion and they can keep the rest as rental if they choose too, so basically the sponsors have no incentives to sell cheap and can rent those apts until the market picks up. I dont know if the new developments have the same luxury but most of the bulidings here are conversions.

the rental and buying market for the 2 bedroom plus sized( over 1200 sq/feet) apts are going up. we were recently told by a bank ( still waiting for this in writing ) if we buy 2 one bedroom apts adjacent to each other and we open them within 30 days, both apts will be considered as primary residence and one will not be considered as an invesment, so maybe there is a market for the bigger apts.

Thanks for your support on that, will. What I do is very economically sensitive and at the top of the feeding chain: translations cost the end-client 25 cents per word and up (of which I get about half), that is, around $75 per average double-spaced page. My clients are the top law firms and accounting firms around the world. If no deals are being done, no one hires my services. And if people stop buying at Wal*Mart, it runs right up the chain until it reaches me, the most expendable one.

All my clients say the same thing, too: they're overwhelmed.

sfo: the courts have already determined that sponsors are under no obligation to sell under an offering plan, so it doesn't matter what's in the offering plan. On the second point, you need to have a single loan for both places, and combine them under the proprietary lease. If you have separate loans, you lose; if you don't combine them, you lose. You also must remove one kitchen. A new CofO is not needed unless you close off one of the doors to the hallway.

stevejhx - You raise a very interesting point about the combination of two apartments. You stated that "a new CofO is not needed unless you close off one of the doors to the hallway." Not that I'm challenging you, but I've heard something to the contrary from a RE attorney (who can be wrong) and just wanted to know how certain you are about this. In addition, I was told that an expeditor would be required for the combination paperwork. Thanks in advance...

sfo - I agree that I've seen the power of a larger, combined apartment if one is lucky enough to gain access to 2+ adjacent apartments but only if the flow makes sense. Some combinations just don't work, which is why there's a premium to having a combination that flows well as one large apartment. I've been thinking of combining as well.

what do you think of duplexes ? buying two apts on top of each other ? i have been discourged, but not too sure why ?

sfo: Returning to your point about the options developers and conversion sponsors have in a weak market, I think each situation is slightly different, depending on the financing, the original exit strategy, how far off the original plan the project is, and how much flexibility the decision-makers have. That's especially true in a credit crunch, because finding new money isn't a sure thing anymore. Although nobody would predict widespread dumping, some marginal players could run into serious trouble. And if they have to unwind, they could take chunks of the market with them when lenders start to revalue collateral in response to a fire sale. It's not a highly likely scenario, just a plausible one.

duplexes are great. Problem is it is considerably more expensive to go up and down compared to side by side. You also lose room because of the staircase. Approvals would overall be more difficult and take longer.

Anyone ever combine two "side-by-side" units that are in different brownstone co-ops or is it crazy to even consider.....

Do you think LP1 got his question answered?

qwerty: I could only imagine it would not structurally be possible.. nevermind the legal issues!

sfo, the rules changed in about 1999, when I was on the Board of my co-op in the West Village. Formerly, a new CofO was required to combine apartments. They changed it as long as no doors were added or removed, and one of the kitchens was removed, no new CofO was required. If it's changed since then I'm not aware. You then have the proprietary lease changed. Note, however, that in many cases, unless you file for a new CofO, if there are votes by "number of units," you will have 2 units instead of 1, even if they are combined.

The loan part is very important for your tax deduction and capital gains. It needs to be one loan for both apartments, else one will be an investment loan. If you're buying them & they're not currently connected, I'd contact a good lawyer who's done this sort of thing before, since it can be tricky. But if your RE attorney doesn't know about the change in NYC law, you might want to call the Buildings Dept. to confirm what I said.

JuiceMan: Yeah, about seventy ways... and they're all right to some extent.

"Manhattan" is probably too complex and varied a market for a single answer. We each have our own areas of focus, and in some cases a vested interest in the answer, so it's natural that opinions vary widely. The market segment that currently interests me most - conversions of fairly crappy rental buildings on the Upper West Side - seems to have ground to a standstill. Since the segment consists of about four buildings, each with its own unique problems, my observations may have no relevance at all to somebody interested in a different neighborhood or property type.

Agreed West81st, many ways to answer this question.

Regarding all the jobs that are going to be lost in NYC, what about all of the bankruptcy lawyers, forensic accountants, turnaround professionals, distressed investors, etc? Hiring like crazy right now and there are a ton of these firms in Manhattan. I wouldn’t underestimate NYC’s resiliency in the job market, regardless of market conditions.

West 81st. I agree Manhattan is very complex and varies for a single answer. What is frustrating for me is the bulls on this board answering for every market. It seems they are all have very large portfolios. Anyting I am looking for would be considered "crappy" by Spunky and not quality by others.

I don't think the luxury market is relevant to the 1.25M 2BR / 2BTH UWS Co-Ops. I am not waiting for the market to decline before I jump in. I just want to be careful in an uncertain economy and job market before I put the majority of my liquid assets in a long term purchase.

Also, if I am relying on tax savings (interest expense) and my job goes south I not only have to have a surplus in the bank to cover current mortgage expense but also my cash outlay goes up because with less or no income I don't get the tax benefits.

Juiceman - the bankruptcy/distressed/forensic accountants/turnaround professionals aren't hiring like crazy, nor is this a particularly large universe of people (and has never been a large universe, even during previous recessions). Distressed asset management is a relatively small, clubby group that may get busier, but they don't hire in droves. It's not a client-driven business, so truth is it's not so labor-intensive. You have guys who are experts doing the analysis, then they buy/sell specific assets - you don't need many people for this.

As for reorg bankers, during bad times they simply move some of the lev fin bankers who haven't been fired to cover restructurings. Again, a very small universe of folks. And reorg fees are usually subject to bankruptcy court approval, so significantly less than traditional inv banking fees.

Bankruptcy lawyers may get busier. But your argument is silly - the flipside of your argument would be that during market booms and wildly loose credit, despite the fact that investment bankers are being hired like crazy, NYC's growth would be tempered by the loss of jobs in bankruptcy law, distressed investing and forensic accounting. Pretty hysterically funny, right? Hard to really take what you're saying too seriously.

But that does leave forensic accountants!!! Juiceman, I can hear you now: "The NYC economy will be saved by the booming forensic accounting industry."

Pez: My guess is that your sentiment is very similar to many people looking at this market right now. It would seem to me that job uncertainty probably ranks #1 among the best reasons to hold-off buying. You don't want to enter into a 30-year obligation/liability if you don't have a clear picture of your income stream for the intermediate future. The #2 reason for holding off is that you would hate to pull the trigger, only to find asset prices correct downward immediately after. Either scenario would suck. Both scenarios would blow.

I think the Bear Stearns collapse on Friday is the catalyst that skewers the market. It isn't that there is a direct relationship or because Bear was big in mortgages or because I am just talking about Bear employees. This is one true event that will change Wall Street employees' psychology toward big purchases.

Pez: Don't let it get to you. Spunky may be a fabulously successful high roller, or he may be a nineteen-year-old dropout posting from his Mom's basement in Jersey. We all could be. That's what makes the Internet so much fun.

Markets reward people for taking risks. At some point, an apartment that meets your needs may decline to a price point you can afford (and get a loan for). I think that day is already pretty close. The reason our segment of the market is soft is that there's a lot of downside risk in it for people like us. We feel insecure about our jobs and other obligations; if we roll the dice on an apartment and things go badly for us, we could lose everything pretty fast. When that cloud of uncertainty recedes, whatever bargains are emerging during this downturn are likely to disappear too. So there will never be a perfect time to buy.

If you have the stomach, the market will reward you for buying in uncertain times. You might get wiped out, but that's the risk you're being rewarded for taking.

Guys, just go to bloomberg.com and read the headline: "JP Morgan Offering $15-$20 A Share for Bear Stearns".

Then read down:

"The deal will likely lead to massive layoffs at Bear as JP Morgan consolidates businesses. But Bear isn't alone. Sources tell CNBC that CS First Boston will be cutting jobs this week in its investment banking department and big cuts are looming at Merrill Lynch where middle managers are bracing for cuts of 10 percent across the board. Also sources say Lehman Bothers will likely be in for turbulence given its own holdings of risky commercial real estate bonds. [...] The biggest loser in all of this are the 14,000 employees of Bear. Employees own close to 25 percent of the firm, meaning top execs net worth has been nearly destroyed in recent months. And if the sale price is in the $15 to $20 a share range, these employees will be left with next to nothing."

You property bulls have argued for so long that NYC was "different" because of Wall Street, that Wall Street bonuses were what were keeping property prices high.

The death of Wall Street was what caused the last major downturn in NYC's property market, from 1988 to 1999.

Well guess what? THEY'RE BACK!

Just like I said they would be.

Apologies not necessary, Spunk.

West 81 thanks for the very reasonable thoughts.

For me it has been a great process in that saving up for an apartment has given us huge reserves. I haven't seen many apartments in the 1-1.25M that would not be several big items below my $4,000 rental. (worse location, less space, less than 2 bathrooms, less light). We are very happy to sit tight and look and see what happens with the economy and continue to save up for either an apartment down the road or for a rainy day.

Stevejhx - you're wrong. NYC is different. Just read Juiceman's post. NYC's economy will be saved by a hiring boom for forensic accountants.

I just looked at a 6-month chart of BSC. The entire company just EVAPORATED!!! Particularly in the last 5 days. Wall street is covered with land-mines at the moment.

Thanks for your comment West 81. You are right re the need for a strong stomach. I bought a place in the fall. So far, so good, but every time I read the Wall Street Journal, and especially when I read this Web site, my stomach churns.

I guess I keep telling myself that I am in it for the long haul. I got a good price and a great interest rate. And maybe it will go down in value the next 18-24 months but probably not by much. And then it will go up again in 2-3 years, and then further up. But then what happens in 10 years when the next catastrophe hits? Oh my god. Don't know if I can stand this!

Kidding but my point is that you can wait till things go down, but then they'll go up, and then probably down. But if you plan to eventually by in Manhattan, you may not to talk things down too much or make too much of a point that Manhattan is not different because if you prove your point too well, you'll wind up buying into something that is less of a gold standard in real estate than it currently is. You may not want to de-value a club that you may some day want to be a part of.

Pez, beautifully succinct post about "the process." My numbers may be smaller but my experience is nearly identical.

Bear Stearns just sold for $2/share.

That's right - it closed yesterday at $30/share and now it's worth $2/share according to the WSJ.

Now about those bonuses...

Bear Stearns just sold for $2/share.

That's right - it closed yesterday at $30/share and now it's worth $2/share according to the WSJ.

Now about those bonuses...

Does that mean it will open at 2 bucks a share?

Yup, or less, depending on what JPM opens up at.

Any predictions on where the DJIA will end tomorrow? Looks like it's going to be a very wild ride.

fed just acted, and futures JUMPED. Not sure why, this is NOT good news. They are starting to come down now..It just shows you how toxic their books were with no market to sell anything.

This fed move sounds very panicked to me. AHHHH, I love SKF & GOLD! Thank god for the 400 point rally last Tuesday to get short again!! I should disclose, also short WM; will they be the first big bank to fail?

dear spunkster, shoulda listened to me and bought gold instead of those financial stocks. fed is sweating and cut the discount rate a quarter so close to its meeting. Bear closed around $30 on fri- it was sold for $2 today. Investors and trader clearly had misjudged the extent of the problems and worth of Bear. Classic 'run on the bank' situation. Other brokers reporting next week.

It's the foreigners, stupid! LOL

Spunky - Ill venture a guess. Down 340! Gold up $20

Down 340? Really? On my thread - Death Knell - Tony - the world's last Manhattan property bull - predicts:

Tony: I am here, Stevejhx. I am your detractor. I wouldn't be surprised if the stock market goes up on this news tomorrow or Tuesday, once JP Morgan's stockholders okay it. Could mean we've hit bottom.

MMAfia - I didn't misjudge anything. I've taken abuse for my position for weeks now.

WM won't fail, but watch Wachovia pick it up. Though they might be in a quag as well, what with all their FL properties.

Unless Chase can pick up two rocks at once.

let me guess..WM is too big to fail? Yea, heard that before. Why not. This is NOT GOOD news. Think about this.

On Tuesday the markets rallied as the fed announced a new lending facility, TSLF, that widens collateral allowed to be used. A good step. That facility goes into effect at end of this month.

Now, this bear thing happens. Fed backs up the deal, the company gets bought at $2/share, or $270 mil. So what does the fed do in addition? They cut discount window and get the Fed Reserve bank of NY to lend $30 billion EFFECTIVE TOMORROW to primary dealers!

Talk about a panicked move! They couldnt even wait 2 more weeks for the new TSLF to go into effect. Hence the FRBoNY deal effective March 17th! How could this paint a good picture about what is going on? Systemic margin call!

urbandigs, I see nothing good about it. WM won't fail - neither did Bear. But they're in bad shape. The question is who will buy them, & under what circumstances.

I worked for BofA when they picked up Continental Illinois for nearly nothing. They picked up Seafirst for nothing, too. Basically, they assumed their liabilities and handed their assets to the Feds. The problem is that right now there are essentially only two American banks solvent enough to pick up the debris - JPM and BofA - and they've both got their hands full. So who's left? Hand Wamu to RBS? Politically impossible. Maybe Wells Fargo? Monopoly issues in the West. You may see the Fed start to lift the 10% deposit cap to allow JPM and BofA to exceed it: they're the only two banks in the country even remotely close.

Of course the Fed is panicked. They see a huge run on dealers tomorrow. They're doing exactly the right thing, just like Greenspan did after the 87 crash: pump in liquidity. They couldn't wait for TSLF b/c it's not worked out yet. All they can do is react. This is a crisis of confidence.

But whatever they do, the problem is, the Fed is 7 months too late.

i agree with what you are saying Steve. But to the shock of this thread, I dont think Im as bearish as you. But you are right, its a crisis of confidence right now.

I'm long-term a bull, urbandigs. I think the economy is sounder than most people know. (Read my other thread.) I'm 150% invested - just not in the US. The only thing I'm bearish on right now is property, and then, subsidiarily, banking. But the banking issue is really fake: there's no market for these exotic instruments, so they're marked to 0. But they're worth way more than 0. Not face value, but not 0. JPM just made the deal of a century, b/c in a year all those assets will be revalued, and they're going to be super-rich.

On the backs of Bear's employees, unfortunately.

What happens to Bear's employees? Do you think the majority will be downsized or will they be incorporated into JPM?

Probably a mix, Spunky.

According to CNBC, U.S. stock index futures rose on Sunday evening after JP/Bear deal and the unexpected rate cut were announced. S&P 500 futures were up 5.3 points and Dow Jones Industrial Average futures rose 84 points. Nasdaq 100 futures gained 5 points.

Yes, a rocky ride... but no, not off the cliff.

Thansk Tony But I think the futures are pointing for a lower open. I just can't believe they will let the majority of Bear's employee's go. I would think there will be a field day for competing firms looking for talented employees with strong relationships.

Tony, do I have to remind you on this thread, too?

"HONG KONG (MarketWatch) -- Asian markets suffered steep losses early Monday on worries about global credit markets and a weakening U.S. dollar after J.P. Morgan Chase agreed to buy Bear Stearns Cos. for $2 a share and the Federal Reserve cut the discount rate by a quarter percentage point."

Spunk, I'm glad you're back. No apologies needed. Most of the Bear employees will be eliminated. Most of the lines of business will be shut down. Why do you think JPM is paying $2 a share, with a $30 billion guaranty from the Fed? Because the business is worth something? Absolutely not. They'll keep the prime brokerage and some servicing lines, everything else is out the window. Back office will be handled someplace cheap, like India.

I surprisingly agree with you Stevejhx on your last post.

Spunk, are you for real? "I would think there will be a field day for competing firms looking for talented employees with strong relationships."

Exactly WHICH competing firms are looking for people who work in the mortgage-backed bond industry, which is the bulk of BSC's business?

Citigroup? (About to cut 30,000 people)
Merrill Lynch? (About to cut 10% of their headcount)
Lehman Brothers? (Tanked 14% on Friday, expect even more today.
Morgan Stanley (Reported a huge 4th quarter loss).

Nobody wants these things, Spunk, that's why JPM got such a deal, with a $30 billion guaranty from the Fed.

The only two American banks that are healthy enough to wipe this up are JPM - just ate BSC - and BofA - about to eat Countrywide, and wants to sell its prime brokerage, anyway. UBS is trying to pawn off Paine Webber, RBS is devouring Amro. These bonds are TOXIC because no one knows what's in them, and no one knows who is going to default. When there is no market they are marked to $0, whether that's what they're worth or not.

Spunk, before being such an optimist, learn the facts. I was a bank auditor with BofA and Price Waterhouse, I work as a financial translator now so I know what's in this s*it. Nobody wants any of it.

Sorry was referring to their stock brokerage division and various other non mortgage related divisions.

Spunk, my research says that except for the prime brokerage - which is what JPM wants - and some servicing lines, those otehrs are small. JPM is huge, can devour BSC fast. BSC made its name precisely in the mortgage-backed securities that no one wants. There's almost nothing else but that. Where are they going to go?

stevejhx, no worries i'm talking to spunkster and the rest who didn't want to believe me when i said it's better to rent and take the downpayment/transaction cost money and put it into gold and wait for the smoke to clear.

some people were asking whether or not to buy (Q4 last year) and that was the advice I gave, and of course the spunkster and team hooted and hollered just like they did with you. he's excellent at egging people on, and great entertainment.

MMAfia, you're my new best friend! Or as Paris H. says, my BFF: best friend forever. That's what got me in so much trouble with these property bears: I told them it costs half as much to rent as it does to buy, and the only thing they didn't throw at me was tomatoes, and the kitchen sink.

You're exactly right: I got out of the Miami real-estate market the day before Hurricane Wilma. My accountant was pissed b/c I paid LT capital gains. I said, "If I don't sell this place today, I'll never sell it."

And lo and behold, 2 1/2 years later, the apartment 2 floors above mine is still for sale for $750,000, when I offloaded mine for $1 million.

But when I came back to Manhattan in 2004 and saw the feeding frenzy, I said, "No way! I'm renting!" And I'm a happy renter. And when I buy in 18 months, I'll be a happy buyer.