A Glut Of Greed Seemed Like A Great Idea At The Time
A report from the Virginia Pilot. “The yellow-brick building with a view of the Chesapeake Bay seemed ideal to Adam Law. Condos there were small but reasonably priced, and from Ocean View it was a short drive to his job in Hampton. Plus, the contract stipulated that the developer would pay the first year of condo fees. So Law bought a place. Not long after, trouble began. Rainwater seeped through cracks around his windows and onto his living room floor during a November 2006 storm. Seven months went by before the developer sent a repairman. The developer, Jonathan Z. Rubin, also failed to fix a broken elevator or install the recreation room and gated entrance touted in advertisements for the condos.”
“He said he can’t decide whether to stay or leave. ‘It’s like the American dream has become the American nightmare. It is so upsetting,’ said Law. ‘I feel chained to my home.’”
“In January, Law stood in the building’s hallway, staring at a real estate flier taped to the door of an unsold unit. The bank listed it for sale at $50,000 – a fraction of the $160,000 Law paid. He shook his head. ‘I’m so screwed.’”
The Star Exponent in Virginia. “Distressed properties remain on the street and on the market in Culpeper, presenting opportunities for buyers with good credit to get a good deal. Last year, according to county records, at least 300 homes or vacant lots went into foreclosure in Culpeper. The current state of real estate put Clifford Kearns out of business. A mortgage broker for 17 years, he closed shop last week for good. So what happened?”
“‘We were a broker for two different lenders that were supposed to be bought out by a bank. Then we actually went to work for the bank and they were taking 90 days to get a transaction done so we couldn’t afford to stay open doing that,’ said Kearns, a lifelong Culpeper resident.”
“Tuesday afternoon, he was in the office overseeing final touches to its renovation, hoping he could find a new tenant sooner than later. Kearns, who owns the building, said he didn’t have any firm interest in it yet. Asked about the overall state of the mortgage business, he said, ‘It sucks. The banks are still not loaning any money. There’s another 200,000 foreclosures getting ready to hit in the state of Virginia.’”
The News Journal in Delaware. “At full throttle, Delaware’s housing market in the middle of the 2000s gave a record number of families a taste of the American dream of homeownership. For many, that taste is all they got. Thousands have since returned to renting because of job loss, unaffordable interest rates or a stagnant sales market. That has pushed Delaware’s homeownership rate back down to its 2000 level, prompting questions about how vigorously society should encourage owning over renting.”
“Pamela E. Freeman, who lost her house two years ago and moved into a rented Pike Creek townhome while her credit recovers. Freeman had been a homeowner for more than 25 years and had built up a good credit record. She and her husband divorced in 2007, shortly before she had a home built in Smyrna.”
“She got a mortgage for 100 percent of the home’s value, expecting to refinance to better terms after the sale of the couple’s previous home. But those plans fell through and left Freeman with a monthly mortgage payment of $2,600, which she couldn’t afford. Freeman tried to sell her home, but the market had slowed to a crawl. Her lender foreclosed and Freeman filed for bankruptcy. ‘I tried everything to not be in this situation,’ Freeman said. ‘It felt like such a failure.’”
“‘People were getting mortgages and becoming homeowners, but it wasn’t sustainable,’ said Steven Peuquet, director of University of Delaware’s Center for Community Research and Service. ‘There are some households that don’t have the financial stability to sustain homeownership, and maybe we’re doing them more harm than good,’ he said.”
“The gains in homeownership came at the expense of some common sense, experts said. ‘Remember this? ‘No job, no credit, no problem,’ said Melinda Proctor, a real estate agent with RE/MAX Sunvest Realty in Wilmington. ‘Everybody’s seeing the effects of it now.’”
“Freeman moved into her Pike Creek townhome about two years ago and figures she has another year before her credit recovers enough to become a homeowner again. She hopes others can learn from her mistakes. ‘There are a lot of people who are struggling with having to make this decision,’ she said. ‘Actually, there’s a positive side. This has become my transitory place of peace and restoration.’”
The News Post in Maryland. “In Frederick County, 55 permits for new construction were approved in March, according to John Lynn Shanton of Strategic Marketing Group in Frederick. The March permits for future construction included only one condominium in the Villages of Urbana. The rest were for single-family houses, 11 of those in the Villages of Urbana.”
“Bob Sawchuck, a Realtor with Mackintosh Inc. Realtors, said via email that as of May 14, 73 homes had been sold in Frederick County, up from 47 for the same date in April. Of those sold in May so far, 23 were foreclosures, and eight were short sales. As of May 14, the inventory of houses in Frederick County is 1,320, of which 313 are distressed properties, Sawchuck said.”
“‘I am certain the increase in existing home sales is having a negative effect on the sales of new homes.–Particularly, with the fact that about 50 percent of the homes are selling as distressed properties,’ Sawchuck said. ‘Buyers are getting a better buy for their money by purchasing a distressed property at below the market value.–This is putting extra pressure on new home builders to trim costs to continue building.’”
“Sawchuck said builders are offering incentives to encourage new-home buyers to invest in pristine properties. ‘Many distressed properties–are in need of moderate to significant repairs as the result of previous owners’ neglect or owners taking it out on the property prior to leaving,’ Sawchuck said.”
The Winston Salem Journal in North Carolina. “The state’s job market continued to move in a positive but exceedingly slow direction during April, according to economists. Even though the jobless rate remains at its lowest level in more than two years, economists said to not expect much more improvement until the housing market improves.”
“Michael Walden, an economics professor at N.C. State University, said he was encouraged that more people were in the labor force looking for jobs. ‘The problem is the slow pace of improvement in the job market is related to the housing market,’ Walden said. ‘Normally, the housing and construction markets are sectors leading the economy out of recession. With housing prices still falling and construction employment sagging, these sectors are still a negative for the economy.’”
“The commission reported that there was a loss of 1,500 construction jobs in April. ‘The economy won’t get well until the housing market gets well — and that’s still in the future,’ Walden said.”
The Citizen Times in North Carolina. “Just four years ago, in August 2007, there were grand plans that could have made Western North Carolina a golf mecca for world-famous players turned course architects. Today, those dreams are at best postponed and more likely gone forever. The legal travails of developer Keith Vinson at Seven Falls in Etowah suggests more than bad timing and misfortune created problems, but in most other cases what can through hindsight seem like a glut of greed for high-end golf and real estate seemed like a great idea at the time.”
“Four years ago numbers from the National Golf Foundation offered research that several million baby boomers with money were going to retire to North Carolina and South Carolina and were looking to live on golf courses. With the lay of the land and the natural beauty this area had to offer, why wouldn’t developers target WNC as a prime area for growth?”
“With wealthy golfers lining up for lots and homes, it appeared to be a plan that couldn’t go wrong. But it did. The economy tanked, stocks sank or disappeared, retirements were postponed or canceled, grand times of leisurely rounds, 19th hole cocktails and a relaxed slide into the golden years was replaced by fear and conservative money management that didn’t include second homes that cost millions.”
“The latest numbers suggest fewer than 60 golf courses are being built in the U.S. this year, when a couple of years ago that would have been a slow month. The world has changed a lot in four years, and those who struggle to maintain jobs and mortgages and grocery money don’t shed tears for millionaires missing out on second homes.”
“The future of private golf is as uncertain as many other aspects of a still troubled and deeply flawed economy, but there is little doubt that the dreams of yesterday have been crushed by the realities of today.”
The Charlotte Observer in North Carolina. “U.S. District Judge Frank Whitney asked the questions Thursday that many have asked about the real estate professionals, lawyers and others caught up in Operation Wax House, one of the biggest mortgage fraud investigations ever in the Charlotte area. ‘Did you think you might not get caught? Didn’t you know eventually someone wouldn’t be able to pay the $14,000- or $15,000-a-month-mortgage?’”
“In a federal court sentencing hearing in Charlotte, Whitney was addressing defendant Walter Staton Jr., a former Charlotte mortgage broker who admitted receiving about $500,000 in kickbacks from illegal flip sales of pricey area houses. Staton also admitted moving his family into one of those houses for a time, an almost 6,000- square-foot home that prosecutors described as a ‘mansion.’”
“Staton and others were accused of setting up an acquaintance to buy the house at $1.05 million in April 2007, then manufacturing false paperwork just a few months later to allow a family member to buy the house at an inflated, ‘flip’ price of $1.6 million, prosecutors said Thursday. When the house went into foreclosure, the lender was able to recoup only $700,000, according to county property records.”
“‘It was never the intent for the property to go into foreclosure,’ Staton told the judge. ‘How did someone of your sophistication think you could beat the foreclosure?’ Whitney pressed. Said Staton: ‘Maybe I was just hoping it wouldn’t happen.’”
“Operation Wax House has 37 defendants so far and prosecutors say they expect to eventually charge 70. The scam, carried out mostly in 2006 and 2007, involved about 80 homes and about $100 million in loans in seven subdivisions in Union County’s Waxhaw area and south Charlotte. At least five mortgage fraud groups, or cells, worked to inflate the sales prices of new homes by $200,000 to $500,000 over their actual value, according to records in federal court in Charlotte.”
The Journal News in West Virginia. “At 50 years of age and with more than 25 years working at newspapers across West Virginia, very little information comes as a great surprise. That’s not saying journalists know when a particular bank will be robbed, but none are surprised to hear that a criminal robbed another bank. The same is true of business failings: If you’re aware that a business picked a bad location, didn’t advertise or provided poor service, you’re not really surprised to hear it closed. The Journal’s initial efforts to investigate problems and issues facing Eastern Panhandle homeowners, subdivisions and developments, however, has broken that rule. Just a quick look at those many challenges generated real surprise, shock and worry.”
“To quote one homeowner who attended a Jefferson County Organization of Homeowner’s Associations meeting this week: ‘It’s a real mess.’”
“That’s an understatement. With thousands of homes in hundreds of developments spread across the region - and thousands of other home sites just waiting for the recession to end - this is a huge regional issue. The challenges are almost endless: foreclosures and bankruptcies, maintaining the infrastructure, building out the dozens of unfinished developments in the region, resolving the numerous court cases already filed in the region, enforcement of traffic laws within subdivisions and more.”
“West Virginia - unfairly some say - is referred to nationally as a ‘judicial hellhole.’ If we fail to look at the problems facing the thousands of homeowners who have moved into our subdivisions and developments, we might add ‘homeownership hellhole’ to the list.”
“The problems are complicated and exasperated and because the housing boom came so quickly, there was very little advance planning. The homeownership questions also are complicated because no one forced these homeowners to buy a house in a subdivision or private development. It seems a valid argument: It was the homeowners’ choice, so let the buyer beware. No one forced the homeowners to buy but - in terms of looking at the long-term issues such as public services, liabilities and commitments - no one was there to help them either.”
“When subdivisions and developments were being planned and approved - and covenants and restrictions being written - there are no homeowners involved. No one was watching out for the homeowners’ long-term interest. It was all about development and growth. It was all too easy. Too quick. The money too good. The explanations were too simple.”
From the Delaware article-
She and her husband divorced in 2007, shortly before she had a home built in Smyrna.”
She and her former husband divorced, thus losing a significant percentage of household income and she went bought a newly built house anyways? WTF….. This is deliberate disregard for risk. It wasn’t a mistake…. she wasn’t “taken by surprise”. She ignored it. By 2007, *everyone* in Delaware had some idea that the horizon looked doubtful.
Don’t you love how the journalist reports, without skipping a beat, the progression of the woman’s divorce followed by her building a home, as though that is a fairly typical sequence of events in a modern woman’s life cycle? And of course, no comment is offered on the questionable nature of this financial decision.
It’s what my ex- did. Mainly to get primary custody of “her” kids. And to escape the memories of the “abusive relationship”. Like all the credit card bills.
Of course, that didn’t mean she left the other things that would remind her of the “abusive relationship”, like my car, and pretty much everything in the house.
No, I’m not bitter
She felt empowered!
“A Glut Of Greed Seemed Like A Great Idea At The Time”
Isn’t greed the cornerstone of capitalism? If we weren’t greedy there would be no entrepreneurs, right?
We’ve been over this a few times before.
Then why the headline?
Optimal equilibrium under the free market system is only achieved with perfect information and rational decision making. Does this describe how the majority of your neighbors and coworkers seem to make choices in life? On the flip side, what is the alternative? Appointing a few HBBers as decision making fiduciaries for average Americans? This is a wake up call, and an education most Americans need. Trying to lessen the impact on those that made bad decisions is shameful and counterproductive.
Yeah, but we wrestle with it don’t we?
‘The problems are complicated and exasperated and because the housing boom came so quickly, there was very little advance planning…No one forced the homeowners to buy but - in terms of looking at the long-term issues such as public services, liabilities and commitments - no one was there to help them either.’
‘When subdivisions and developments were being planned and approved - and covenants and restrictions being written - there are no homeowners involved. No one was watching out for the homeowners’ long-term interest. It was all about development and growth.’
And this is just one state, with thousands of “owners” stuck in these HOAs. Consider the many thousands stuck in their condos:
‘It’s like the American dream has become the American nightmare. It is so upsetting,’ said Law. ‘I feel chained to my home.’
Right now, we seem to be in this blame vortex. IMO, it doesn’t matter as there isn’t any entity that can fix all these problems. Mean ol’ Mister Supply & Demand is at work night and day.
“Right now, we seem to be in this blame vortex.” It is hard for some people to accept that they destroyed their family’s financial health because they expected continued appreciation at rates higher than historical levels (with no return to the mean) and decided it was a great idea to spend an extra 75k or more on a few thousand dollars worth of granite and stainless steel appliances, and a quick paint job.
I agree. For some reason I was thinking about this fairly successful businessman in N AZ this morning. A few years back he told me this story: in the early 2000’s, he realized he needed to expand. He was renting a commercial space for $10k/month. So he bought some land nearby. (I don’t know if he borrowed for that or not).
Then the price of land shot up. He couldn’t resist selling. But then he took the profits and bought some residential lots, even though he already bought a house for his family (which he owed money on). The economy gets worse, his business doesn’t do as well, and the lots aren’t worth very much anymore.
Here’s the kicker; when we talked, he blamed “those Californians with their equity drove up prices and caused the crash.” There’s a certain amount of truth to that, but his own greed isn’t considered. So he still pays the $10k/month all these years alter. His business would be much larger if he had the room to expand, but he can’t afford it now. Multiply this situation by maybe millions of times.
At the same time, it could be said that greed, or profit motive spurred him to start his business in the first place. He produces a quality product, and employs many people.
“…he realized he needed to expand…”
I’ve heard similar tales in my circle. A coworker’s spouse ‘needed to expand’ their nice domicile in a desirable part of town back in the mid-2000s; he was sure it was a smart financial move and that the value of their home would increase to more than match the investment. What increased was the size of their mortgage. Now that his real-estate-based paycheck has dwindled in the wake of the Great Recession, they have to sell that nice home with the expensive upgrade into one of the worst markets for upscale real estate in San Diego history.
The typical J6P saw every other investment being screwed with by either the banksters or the government. The only thing that seemed to hold its value, or keep pace with the officially non-existant inflation was real estate.
And their primary source of info is cable TV. Which is a lagging indicator, at best.
MSM only reports on stories that have become too big to ignore.
I still blame the banksters. Follow the money. Everybody involved is pretty well screwed, but them. They got their cash up front. And when their house of MBS cards collapsed, they let J6P pay for it again.
“Optimal equilibrium under the free market system is only achieved with perfect information and rational decision making.”
Optimal for whom? Don’t scam artists and Realtors increase their take by keeping others in the dark?
Optimal in economic terms (i.e., most efficient allocation of dollars and widgets as a whole). In a bargaining game there are three scenarios, one side wins, the other side wins, or both sides are even (often referred to as fairness). Economics favor the later while most ppl want to feel they won.
Years ago when I worked at HP, and when they actually bothered to spend money to trains us, we were working with a German partner on a project, so we were trained in “German Business Culture”
A learned a few interesting things in that class.
1) Fairness: If a German vendor vendor gives you a quote and you reply, asking if they can do better than that, they will be insulted as the idea is that they will give you a “fair” quote the first time around. To ask for a better deal is to imply that they are trying to rip you off.
2) Git ‘er done: This drives American partners batty, as Germans will defer tasks until the feel they can be done “correctly”, and no amount of American cajoling will change their minds. This is also relected on the personal level. I had a coworker who lived in Germany for a few years. He told me that when Germans cleaned their cars, that they CLEANED them. They would evem remove seats to really vacuum the car well. There would be no “quickie” cleanup job. If there wasn’t time to “do it right” they would drive in a dirty car until it was time.
3) Relationships. Germans will often have a childhood friend who is a personal confidant, who can even rank above a spouse in sharing secrets. What Americans call “friends” Germans call “acquaintances”
There were more, but I found these most interesting.
I had a coworker who lived in Germany for a few years. He told me that when Germans cleaned their cars, that they CLEANED them.
Speaking as someone who has a bit of German blood coursing through the arteries and veins, I can attest to the above.
In short, there’s clean. Then there’s German clean.
Which is why they lost the war.
Perfect is the mortal enemy of good enough
There comes a time when it is neccesary to kill the engineers, and start production.
“Thousands have since returned to renting because of . . . unaffordable interest rates. . . ” If 5% or below is unaffordable what are we going to do at above 10% for a 30 yr fixed?
Sarah
I hear ya. When we bought our first home in 1984, our ARM was at 17.5% and eventually came down. What a bunch of soft brain, cheap money addicted idiots (imho).
Freeman had been a homeowner for more than 25 years and had built up a good credit record. She and her husband divorced in 2007, shortly before she had a home built in Smyrna.”
“She got a mortgage for 100 percent of the home’s value, expecting to refinance to better terms after the sale of the couple’s previous home.
‘I tried everything to not be in this situation,’ Freeman said. ‘It felt like such a failure.’”
Your house was ALMOST paid off. You should have lived in it until it sold and gave half of that to your ex. Unless, of course, you had pulled out every cent of equity over the years…
You did everything you COULD to be in this situation…
Yeah, another sob story where they leave off the pertinent information and expect me to feel sorry for the poor widdle homebuyer.
She should have rented an apartment post divorce.
I’m wondering if the stress of a “new bigger better” home in Smyrna was one of the contributing factors to the divorce.
Twenty-five years. And she couldn’t come up with even a dime to put down, having to do 100% financing that likely included rolling the closing costs into the loan?
No doubt Chile.
More evidence that “stuff” including houses owns you, you don’t own stuff.
You missed the best part:
“Freeman moved into her Pike Creek townhome about two years ago and figures she has another year before her credit recovers enough to become a homeowner again. She hopes others can learn from her mistakes. ”
After divorcing, buying, FB-ing, BK-ing, and only three years of renting, she wants to buy AGAIN! Others will learn from mistakes all right. As soon as she stops making them.
The Citizen Times in North Carolina. “Just four years ago, in August 2007, there were grand plans that could have made Western North Carolina a golf mecca for world-famous players turned course architects. Today, those dreams are at best postponed and more likely gone forever. The legal travails of developer Keith Vinson at Seven Falls in Etowah suggests more than bad timing and misfortune created problems, but in most other cases what can through hindsight seem like a glut of greed for high-end golf and real estate seemed like a great idea at the time.”
I still see faded “Tiger Wood” designed golf developments/communities on billboards on I-95 and I-85 in NC…
I’m wondering if golf is going to go where bowling went.
In the late Fifties, early Sixties bowling was all the rage.
Everybody on the planet was going to go bowling and bowling associated stocks such as Bruinswick and AMF took off and bowling centers sprung up everywhere along with TV shows such as “Make that Spare”.
Now … poof.
Golf courses are very expensive to maintain if you are trying to keep them in top shape…
Everybody on the planet was going to go bowling and bowling associated stocks such as Bruinswick and AMF took off and bowling centers sprung up everywhere along with TV shows such as “Make that Spare”.
In the town where I grew up, there was a bowling alley called the Goshen Lanes. For those of you who are familiar with the West Chester, PA area, you probably remember it.
Any-hoo, the bowling craze sorta lost altitude. And the Goshen Lanes never caught the hipster bowling fever of the the oh-so-trendy 1980s/early 1990s.
The structure is still in place, but now it’s part of the Chester County Book Company, which is one of the largest indie bookstores on the east coast.
And we all know how well bricks-and-mortar bookstores are faring nowadays!
“With wealthy golfers lining up for lots and homes, it appeared to be a plan that couldn’t go wrong.”
Yep. Went jogging in my ‘hood and saw all those For Sale signs planted in front of those “no longer wealthy” golfers’ lots. No sign of the two golf courses they were promised.
“I’m so screwed”……says it all. About pretty much everything.
My nominee to replace “In God We Trust”
And we replaced George Washington with Alfred E Neuman on the dollar bill.
And a portrait of a typical “Middle Class American” on the soon to disappear penny.
It is incredible that people made such terrible financial decisions based upon some data that said.
Retirees would move to Western North Carolina. They would golf at expensive places. And home prices always go up. (But something happened)
Pretty soon we will read in the paper were these golf courses are plowed up and returned to nature. Just like they do with the local dams on the mountain rivers.
Overall, the bubble is about 40% burst in the mountains near me. Another 60% down and we will be at the bottom.
in the mountains near me ??
And the mountains would be where ??
Everybody was building houses to get ahead of the Rich Retired Boomer rush.
Soon, we had a lot more Rich Retired Boomer houses than rich retirees of all types.
Somebody had to be wrong.
Read a Matt Taibbi over the weekend, where he commented that a kleptocracy, like Russia 2010, is the norm’ when it comes to National Governments, and we are well into “reversion to the mean”.
I just wonder if the current idiotic behavior demonstrated by the general public isn’t also a “reversion to the mean”.
How does the saying go? The people will choose a reassuring lie over a difficult truth?
Kleptocracy;
“a government perceived to have a particularly severe and systemic problem with the selfish misappropriation of public funds by those in power”
Kind of difficult to disagree…..
Went to another open house on Sunday. What a waste of time. Being offered at $600K+ and I wouldn’t want it at $450K. In an area that the home owners decided to gate this past year and charge a fee of $104/per month. The house was just inside the gated area so I parked my car outside and just walked around the gate. RE was a husband and wife pair. They asked if I could afford the price of the house to which I said ‘yes’. But I added that if I wanted it that I could buy it from the new owner two years from now for $200K less. They nodded and said, ‘yes, prices are falling more rapidly now’.
At the gym this am a fellow told me that his son bought last year when he did his best to stop him and that his son is now underwater on the property but that his son only believed what he heard on the news casts.
My wife and I have been watching a British show “Hustle” about a gang of confidence tricksters. I love the punchline :
“You find someone who wants something for nothing and give them nothing in exchange for something.”
Seems like the whole real estate bubble all wrapped up to me. One giant Ponzi scam!
“Golf course communities”, “Golf course view estates”, etc. are of a piece with Granite counter tops, Vulcan ranges, stainless appliances. More bling from the age of TV housing porn. How many people really want to play golf in the sweltering buggy jungles of North Carolina, South Cakilacky, Jaw Jaw? Once you remove the notion you can move there and use it for a couple years, then make a killing, then it doesn’t look too appetizing. Some people even purchased houses in those types of developments with no intention of even living there, all for speculation.
I think in the long run the Golf Course subdivision paradigm will turn out badly, along with all the other bubbles.
Very few locales in the USA have a mediteranean climate like SoCal. Its why so many people moved there until they ruined the place.
My brother’s daughter (i.e my niece) plays elite level club soccer in North Carolina. They play through the summer too. Must be fun with all the bugs (in that regard the Colorado Front Range is a bit like California, as we are relativelty bug free out here). I can’t imagine living anywhere that is full of creepie crawlies.
You just put on some Off and play. They make versions of it with suncreen built in, so no big deal.
No big deal. That’s what the easterners/southerners would always say about the humidity, too. I guess that makes sense if you grew up in it. But if you grew up not having to deal with it, you find it difficult to believe that human beings voluntarily live that way when there is an alternative.
You could say the same thing about snow, earthquakes and a freezing cold ocean.
There is no perfect place to live.
The Winston Salem Journal in North Carolina. “The state’s job market continued to move in a positive but exceedingly slow direction during April, according to economists. Even though the jobless rate remains at its lowest level in more than two years, economists said to not expect much more improvement until the housing market improves.”
How can the housing market improve before the job market improves?
Also, my sister works for one of the school districts in the Winston Salem area. They are non union and are facing huge layoffs for the next school year. Curiously there won’t be any layoff in administration. So now the public sector mimics the private sector: the low paid worker bees get the shaft while the overpaid bosses are protected.
What amazes me about these brokers is their eternal optimism. In their minds, if the job market improves, then sales will increase. Ignoring the fact that many people had to dive into their 401k to survive the downtown.
So unless everyone is putting down minimum of 3.5% and still has good credit, I’m not seeing any way this is going to improve any time soon.
Poll:
Who is buying silver at around $35 US?
Sold $37.50!
Yeah I know if I had timed it better I could have hooked close to $50…
Plan on buying back in at $19
Doom-and-Gloomers are buying at $40+, while dentists are happy to recycle fillings and amalgam at $35+ net. Seriously happening -
Is Goldman Sachs Doomed?
Posted by Stephen Gandel Friday, May 20, 2011 at 12:23 pm
Farewell to the Goldman we once knew (Brendan McDermid/Reuters)
These are the last days of Goldman Sachs.
On Friday, the Wall Street Journal reported that Goldman is preparing to be hit with subpoenas soon from U.S. prosecutors looking into the firm’s mortgage operations. How big was the news? Not very. Dealbook, the New York Times blog about all things Wall Street, didn’t even cover it. And that might be a bigger problem for Goldman than the subpoenas.
A year ago, news that Goldman was under investigation would have been huge, shocking news. These days, it seems, the notion that Goldman broke the law, possibly cheating clients, is almost taken as a given. At its core, a Wall Street firm is an advisory business. It tells companies when to raise money and when to make transactions. It tells clients what investment are good and what ones should be avoided. If Goldman has lost its ability to be trusted, it’s going to be very tough for the firm to continue. What about trading, where Goldman has always been known to make the bulk of its money? Well, Dodd-Frank may mean that much of that business is going away as well.
In fact, there are already signs that Goldman is in decline. The firm, once a persistent leader on Wall Street, now is all of a sudden an also-ran. Goldman’s shares are one of the worse performing among financial firms this year. Their only rival in that category - ward of the state insurance firm AIG. Goldman also seemed to at least initially stumble this year in the investment banking business, dropping as low as fourth at one point in the ranking of top advisers to companies doing mergers & acquisitions. It recently climbed back to the No. 1, according to research firm Dealogic, but the fact that it had to stage a come back was unusual. What’s more, Goldman’s profits were down in the first quarter of 2011. Worse, it was the fourth quarter in a row that profits fell. And those profits may not rebound anytime soon. Earlier this week, the New York Times reported that Goldman is considering culling its ranks of partners. The fact that firm is planning on cutting back its top ranking employees signals that management believes the firm no longer has the profits needed to support the salaries of those senior deal makers.
…
That would be very interesting indeed. I would love to see GS and Chase go away…
After they pay off Warren!