Sometimes it’s the obscure news items that tell so much about what’s happening on a much grander scale. A relatively small article reported in the March 2 edition of the Wall Street Journal described how in 2007, Credit Suisse Group sold $163.5 million in mortgage-back securities. The “valuable” commercial real estate used to prop up the junk sold to duped investors: a barren, 188-acre former Superfund site in North Miami, Florida appraised at $475 million.
Amazingly, in the wake of all the financial devastation wrought by America’s banking industry which came thrashing down upon us in September 2008, the servicer of this ill-conceived commercial loan package is in negotiations with the city of North Miami to sell these securities and recoup what it can. The “hoped for” price that the holder of these securities is trying to obtain from the city: $6.5 million.
In other words, the now “desired” resale value of one of the worst mortgage-backed security loans in the history of American commercial financing is roughly 4 percent of what was squeezed out of investors and a little bit more than 3/10 of 1 percent of what the value of the land was appraised at when this bogus securities package was pushed for sale in the financial markets.
No doubt, when these securities were being pedaled on Wall Street, the purveyors of this crap sold some incredible load of tripe to all manner of investors out there about how the securities they were plunging their investment dollars into were backed by extremely valuable land. Yes indeed, land that years before was the kind you associated with large black barrels and no trespassing signs warning of toxic risks and environmental hazards.
I know it’s just one more tired example of the unreal, outright deceptive shenanigans that go on among the masters of the universe on Wall Street. That’s the whole point. It’s the mere fact that it doesn’t even stand out and that the sheer dullness of such difficult-to-understand banking deals is considered far too intricate to be covered by the vast majority of mainstream media that enabled financial debacles like this to happen again and again.
Somehow, we all have to find ways to pay greater attention or demand that our federal government put much greater protections in place to police the capitalistic lions of Wall Street who seem to be thriving quite nicely these days after propagating financial misery the likes of which haven’t been seen since the 1930s.
Think about it. No one on Wall Street has been indicted or gone to jail for nearly causing the collapse of our entire financial system. Bernie Madoff? Sure he’s in prison, but that was his own $50 billion ponzi scheme that had nothing to do with the downfall of AIG. Then there’s Robert Allen Stanford. Who’s that? He’s not much more than a challenging answer to a Trivia question about the largest, most prominent alleged ponzi scheme mastermind prosecuted since Bad Bernie though his alleged take – about $8 billion – stands as meager compared to Madoff.
While ponzi schemes are outright criminal enterprises, the real outrage with what goes on in the financial community is that deals like the Credit Suisse debacle just come off sounding like lousy investment plans based on somewhat overvalued land. Somewhat overvalued? A former Superfund site with nothing on it appraised for $475 million that the servicing firm would now be glad to sell for $6 million.
The $475 million wasn’t all fiction. Appraisers based the exorbitant value of the polluted site on projections of what developers could turn the land at Biscayne Landing into, a kind of condominium metropolis with 5,000 housing units and a “Town Center” made up of boutiques and retail stores. None of it came close to happening, but investment firms had no trouble selling off $163.5 million to investors who probably had limited knowledge of what they were buying into. Now that, they are about to lose more than 90 percent of their investment, I’m sure they know.
The fact that most of us don’t have enough interest or even basic understanding of the dynamics of the way these mega investment deals are put together is precisely what the financial thugs on Wall Street count on again and again. The idea that someone can find a way to take a real estate albatross to generate $165 million from a bunch of naive investors – who are simply told that they are buying “mortgage-backed securities” – is part of the genius of the way things work in the rarified air occupied by the titans working in those New York City skyscrapers.
If this was just a one-time occurrence, it might not be something to worry about. However, the same WSJ report claims that underwriting standards for commercial backed securities (CMBS) are actually loosening and the $11 billion in such investments sold last year is expected to go up to $40 billion to $50 billion this year.
So in other words, all of that regulation that you’re hearing so much about isn’t nearly as stringent as you think. The delinquency rate for CMBS loans reached a record level of 9.39% in February, but don’t think that will put on the brakes for the titans of Wall Street. It’s a cash cow and the fact that brokerage houses continue to get away with it, and no one’s being prosecuted for it will just mean that we’ll continue to see the runaway culture on Wall Street do what it does best – line its own pockets without genuine concern or responsibility for those who make the mistake of buying into these investments.
And the people on Wall Street know that there won’t be any genuine consequences if these deals don’t work out because the one thing they can seem to count on is that the feds and the general public just keep looking the other way. Next time you hear about some incredible “can’t miss” land deal that sounds too wonderful to be true, it would be best to assume that it’s not and hold on to your hard-earned money.
(To read more about this click on Rock The Capital.)
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