This Isn't Armageddon

That's really convincing. Really. I'm going to buy that $1.7mm garbage 1br condo right this moment before the millions of new bankers price me out forever.

JuiceMan, there are no more investment banks and there aren't going to be any more. There won't be an SEC anymore, either. Or hedge funds. At least not as we know them. ANYONE who has the potential to cause a catastrophic systemic failure of the financial system will be heavily regulated, in terms of risk and leverage, and that regulation will be done by the Fed or the Comptroller of the Currency. Those factors are what caused Wall Street's profits to soar, and those factors are what caused this current mess.

Will there be boutique shops in the future? Of course. But "boutique" means "small shop" in French, and therefore they can't be major players. First and foremost because, where will they get their money? From commercial banks, that's where. And what commercial bank with its own broker-dealer will want to lend to a boutique shop? Not many - lending to the competition?

Sadly, there are no real deterrents here. It may take quite a little while, but I think the behavior will resurface again. History is doomed to repeat itself when we forget the past and when a new generation takes over, this is very likely. Unfortunately - I think it would just be a matter of time. People will look for ways to make outsized profits and when they find the bubble, it will be milked. If someone can get paid well in the short-term, they often forget about the long-term. I hope I am proven wrong but. . .

If there is one thing that "Wall Street" is good at, it's coming up with new and innovative ways to make money while screwing everyone over at the same time. Even with new regulations I am sure someone will devise a way to do it, for the next bubble, whenever in the future that may be.

I think a lot of this would be less likely to happen in the future if there was more "unconventional accountability". Call me an anarchist all you want, but I happen to think if Fuld & Co were dragged through the streets, tarred and feathered, people might choose their actions more carefully. Yet with all the public outrage, nothing happens and the government "leads" us further into the economic abyss.

Given that the two big independents just became commercial banks, I think the end of independents as we know it is clearly over. There will be some independents, but they'll likely be small and focusing on advisory (like the boutiques). To take the big risks, you need the stronger base.

So, maybe to clarify.. the days of the LARGE independent investment bank are done...

History is doomed to repeat itself when we have a broken political system that allows lobbyists to draft legislation to serve their own purposes at the expense of a stable and healthy nation.

And I mean that as a bipartisan thang.

Their clients' interests.

Agreed with alan (and this specific part of the initial post)... smart Americans will find new ways to "make" money by taking on too much risk in some other way.

That being said, we'll have more oversight for at least a decade - with tons of Americans asking their congressman to screw anybody with a big bonus - and, more importantly, you need *confidence* to be able to build castles in the air. We have a while before we'll have that. We recovered from 29 and 87 and the others, and we will from this, but the bigger ones take longer to forget...

One difference though, we now have a TON of foreigners on an even playing field. There are smart folks in London, too... and a whole lot of other cities. And a bunch have the same access to capital we do (if not more).

of course therewill be new firms, be they boutique or otherwise. Thye will start out small and then become bigger over time. Do any of you remember Michael Milken and Drexel Burnham Lambert? They figured out the idea of the junk bond and how to exploit it. For a while they and everyone of the other firms made good money on them. They know that these fionancial vehicles have risk, and i do believe that they do not go out trying to screw the public, but they get caught up in it and then it explodes and becomes too big.

The dotcom boom was only 7-8 years ago - that was the last bubble. It was a different garden variety but. . . that's the point. It wasn't as big either but that's the point. There will be another one though it may take longer and affect different people.

> The dotcom boom was only 7-8 years ago - that was the last bubble.

NYC RE didn't decline (per the psf charts) and most of the market damage was on companies not in NYC. And, on top of that, the bubble never really popped, it just eased into the next bubble - RE.

We didn't have the shakeout.... so I think we get hit with this once twice..

"most of the market damage was on companies not in NYC"

EW, are you joking? How did the stock market do during that time?

I don't think is is productive or necessary to try and see too far into the future. What we know, for certain, is that all of the factors that led to the dramatic run up in prices from 2002-2007 have dramatically eroded. Mortgages will not be so cheap or easy to get in the future, Wall Street has been changed forever, and with that change has come dramatically lowered compensation. The city will be losing Bloomberg, which in my view will end an unprecedented 16 year run of superb leadership in the mayor's office. Quite simply, there has been a major change in the dynamics of Manhattan real estate, and that change will in all likelihood lead to a 40-50% drop in prices from peak to trough over the next several years, as Steve predicted. After that, who knows.

Actually, I think Steve's last prediction was a 70% decline. It went from 30-40%, to 50% and then peaked recently at a 70% decline predicted.

nyc - I'm speaking generally (though I'm pretty sure the dotcom bubble hurt quite a few people's stock portfolios). Anwyay, I was talking about human nature vs. just about nyc. The previous bubble may have been stronger on the west coast and affected us less. This bubble started here and will affect us more, but will also hurt the whole US. The point us - people will look for outsized profits and when they find it, they will milk it for short-term benefit.

Whatever. The fact remains, the perfect storm that led to the price appreciation has morphed into a perfect storm for price erosion. Where and when that ends, who knows. We only know that it has truly just begun.

I agree that's not Armageddon if one is prepared. Now, if you're sitting on a pile of debt, be it an individual or corp in a very shaky economy, you might have a different view.

With regard to WS banks, as Steve mentioned, we'll have to wait for the heavy dose of regulation that most politicians seem to be anxious to pass. There is no question that the very lax regs over the past decade fueled the WS & associated RE boom. That environment is about to change and it already has in many respects, the question is to what extent.

nyc10022, the interesting fact about bubble breaks is that they can take many years to return to their former peaks (not adjusted for inflation). The NASD market to this day remains 50% below it's 2001 peak and didn't do much in the most recent bull cycle. My concern with RE as a whole (not picking on NY specifically) is it reached bubble valuations most of which are obviously now breaking. When RE returns to its former glory, anyone's guess is as good as mine. If history serves as any guide, some of us my have very long white beards by then. :)

I think OP is right. @ times like these people think gloom and doom, the word's coming to an end and will NEVER get better. Then 2 years later one or two hotshots emerge, get themselves on the covers of all the biz press, making $$ off of some new 'innovative' product that will turn out to be riskier than any regulation could have detected/prevented.

Meanwhile the other heros will be those who will buy up cheap assets for sale.

The talk is doom and gloom, but the prices are sticky. 10% down is far from reflecting the transformation (read: euphemism) of Wall Street, and the credit CRISIS. 30%, 50% who knows. 70% seems high enough to bet against. We'll know when it starts rising again. Momentum is the best guide.

The smart and well connected investment bankers will quit their firms and form consulting firms to work with Congress/The Treasury to manage the $700 billion bailout fund. They'll get contracts with provisions to bypass the "maximum bonus clause". Basically, it's going to be like Haliburton in Iraq but instead of Cheney leading the looting it'll be Paulson.

Finance types are funny in that if they don't have to work hard to make money, they don't work hard. They just take the money.

There he is! I knew 80sMan would get in there to pump-up his prediction of all finance people moving to DC! It's good to know you are consistent. Try to have some diversity, instead of just regurgitating this one-trick pony.

> EW, are you joking? How did the stock market do during that time?

If you remove the west coast and boston tech, the rest of the market did better than the overall market has done this year. And, financials (NYC or otherwise) in 2008 are clearly down more than the market in 2001...

My point is about where the damage is. 2001, we didn't get a direct hit. 2008, we absolutely did...

"Finance types are funny in that if they don't have to work hard to make money, they don't work hard. They just take the money"

So how do you define "work"?

Most people I know in banking who earn the big bucks work crazy hours. It's an ultra-competitive environment and you have to have a certain type of personality to succeed.

That's not to say that people in other industries don't work hard, just that Wall St. bankers do a little more than just sit around twiddling their thumbs.

To the bulls out there: What is your basic premise? Is it that the market is down 10% and that means even under these circumstances everyone should be fired up to buy? How can anything be discussed other than how deep and how long this correction is going to be? 80s Man what are you talking about? You have a cartoonish view of finance. Not everyone on Wall Street had something to do with lending and mortgage backed securities...it's just the loses in those areas are blowing up firms!

Waverly, it gets closer to reality every day. If congress signs the bill, D.C. needs a few thousand immediate finance type hires (and IT and HR and Admin, ...). Turns out there are a few thousand recently fired in NYC. My gut tells me that when congress asks Paulson "who's going to manage this" he says "I know people in NYC who can do this". Congress says "we want oversight". Paulson says, "fine, we'll set up office here in D.C."

LOL, what about organizing a public party in Central Park as soon as prices drop ... say... 30%? it should be fun!

Oversight doesn't mean they hire people in DC to look over somebody's shoulder. It means that there has to be controls in place, an approval process and examiners/auditors to verify that the transactions are appropriate and following all laws and regulations. The banks are here in NYC and the money is wired to them. It's not like they bring a bag of cash to the banks in DC and then they take it on a train back to NYC.

This sidebar is kinda silly because 50,000 out of work finance types here in NY will not be needed...and many of them have no expertise to bring to this. Paulson et al already plan to overpay for the securities anyhow. Haha.

"nyc - I'm speaking generally (though I'm pretty sure the dotcom bubble hurt quite a few people's stock portfolios). Anwyay, I was talking about human nature vs. just about nyc. The previous bubble may have been stronger on the west coast and affected us less. This bubble started here and will affect us more, but will also hurt the whole US. "

Girlygirl, I think we're on the same page.

For thrinald, are you talking about RE bulls or stock market bulls?

I'm still a RE bear (until we hit at least 20% down in Manhattan cleanly, then I'll see where we're at) but a cautious stock market bull. Stock markets turn much quicker than RE (obviously, look where we are), and while I think we have a LONG way to go in this recovery, I think that is priced in. Hell, we are below prices from a decade ago. I think I called double down on this board the day before the bailout announcement.

You also have some double bears, like Steve. But I think you'll have a mix of stock bulls and bears within the RE bear section (which seems to be everyone these days).

Color me a stock and a real estate bear. The global economy will recede as cheap money gets painfully pulled from the system, stocks are only 20-25% down (not enough). Real estate will take time. Although the "turn" was actually coincident in 1994 and in 1982. Interest rates are key to both.

"I think Steve's last prediction was a 70% decline."

Always 50%, & I stick by it.

BTW I sold Fire Island @ asking, after a week. When Manhattan 2-bedrooms are going for $600k, then talk to me.

"I sold Fire Island @ asking, after a week. When Manhattan 2-bedrooms are going for $600k, then talk to me."

Congratulations! I'm surprised frankly. You've done very well. Go for Chelsea now.

Yeah, definitely congratulations, Steve. That's excellent news!

"BTW I sold Fire Island"

Margin calls can be a real bitch, can't they?

"@ asking, after a week"

So you priced it what, 25% below the "market"? Did you laugh in the buyer's face at closing for what a sucker he is for buying anything in this environment?

"When Manhattan 2-bedrooms are going for $600k, then talk to me."

Flashback to yesterday when you said that prime Manhattan is going back to 800/SF... So, 2-BR's in prime Manhattan are 750SF?

Steve people love to hate you.... I think it's hilarious. What's funny is 8x EPS would match the severe '80 recession and would = a 600 level in S&P 500. Not crazy.

Congrats, S, well done.