Month: February 2012

Bad Economic Theory caused the financial collapse along with greed, corruption and leverage says new book

Last week in Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results I was talking about how mainstream economists have earned their dismal reputation because I’ve been searching for a better model of how the economy actually works. Now a new book explains just how the current mainstream economic theory of ‘Rational Expectations’ not only is wrong but in fact is one of the leading causes of the financial collapse. Better yet the author explains why the new economic model which is based on game theory is better  for understanding the financial world but additionally offers a way to avoid future collapses.

American Gridlock: Commonsense Solutions to the Economic Crises

I have read in numerous places recently about how the profession of economics has failed to deliver real benefits because the mainstream theory is built on the wrong assumptions. I and I’m sure you also have experienced the downside of this but these pieces until now have only been able to point out the problem not the solution which would be a new model of the economy and what it would teach us to do differently. Well now we have a better model and what needs to be done to move Continue reading Bad Economic Theory caused the financial collapse along with greed, corruption and leverage says new book

FHA Makes Strides on Speeding Up Its Multifamily Tax Credit Loan Process.

[The FHA] is ushering in the long-awaited Tax Credit Pilot Program, mandated by the 2008 Housing and Economic Recovery Act.

The pilot program aims to drastically speed up the processing time of FHA-backed deals that use low-income housing tax credits (LIHTCs). In the past, LIHTC developers had difficulty using the FHA—the LIHTC program carries strict deadlines, and affordable housing owners and developers just couldn’t wait around for the FHA’s notoriously slow turnaround times.

This new program aims to fix all that. “Expediting our delivery system is a big agenda for us,” says Head. “And it’s one of my biggest priorities.” See the whole MFE Mag article here: FHA Makes Strides on Speeding Up Its Tax Credit Process

When long time contrarians flip is that confirmation of a market top? What about in multifamily?

Read this week that well known stock market perma-bears have gone bullish and that struck a nerve in my contrarian’s contrarian heart. This morning I read a post on the Joseph Bernard Investment Real Estate blog that really got my attention.  Here’s what stopped me in my tracks:

In three decades working in and ­studying multifamily, Johnsey, president of Dallas-based research firm Axiometrics, has developed a bias toward an outlier’s view of what’s happening and what’s coming next. This time, though, it’s different. Strangely, he’s finding no counterpoint position to argue.

“Everything is just ripe for a robust apartment market,” Johnsey says. “I’m always looking for problems. But these numbers are just some of the strongest I’ve seen.”

Johnsey has company aplenty. Market researchers, Wall Street analysts, REIT executives, big multifamily players, and small alike can scarcely quell optimism over practically a sure bet for a bountiful 2012. [Emphasis mine]

Regular readers and students of the financial collapse will instantly recognize the first highlight as echoing the title of probably the best book ever written on the subject, “This Time Is Different: Eight Centuries of Financial Folly”. Authors Rogoff and Reinhart have researched and written (exhaustively) about how many times that sentiment has proven exactly wrong. If you haven’t read it, check it out on Amazon by clicking on the book image in the ‘Learning From History’ section on the right of this page.

Granted the rest of the article goes on to lay out the great fundamentals the national apartment market is currently enjoying and further that short of institutional grade properties in core markets multifamily is a very local business (and properties are more reasonably priced). But still…

What are you seeing in your market?

Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Mainstream economic theory (MsET) has two fundamental tenets that most thoughtful people (even economists) realize are wrong and yet economic decisions and importantly even Fed policy is still based on this flawed model. We know what Einstein said this defines and it’s true.

Problem #1 is the Efficient Market Theory (EMT) or Theory of Rational Expectations says that economic information is widely distributed and that we as individuals and collectively as a market of decision makers and consumers consistently make our choices based on what will give us the most benefit. This has been scientifically proven to be not the case way more often than we like to think. For more on this see “Predictably Irrational” by Dan Ariely and “Thinking, Fast and Slow” by Kahneman in the ‘On Our eReaders Now’ box in the far right column of this page.

The second problem is that MsET is built on the idea that the economy tends to be stable and that dislocations are temporary and tend to correct themselves back to stability somewhat like a train running down the tracks that gets thrown off from time to time. History teaches us that is not the case either. Most often we are moving away from or back towards stability and occasionally pass through stability but typically overshoot. It doesn’t take much imagination to see how these two errors cause problems for economists (and us) and leads to a dismal reputation for them.

I’ve been reading a lot on economics lately searching for a new improved model and have just found a number of articles that tackle those issues. They are lengthy but well worth the reads. The first two were posted by John Mauldin in his ‘Outside The Box’ (OTB) series where others write about and discuss their sometimes opposing views from John’s. Mauldin will begin each piece with an intro about the author and where he might differ from that point of view. His guests are typically people who deal at the highest levels and their insights are Continue reading Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Canadian Multifamily Bubble? Sadly the US can watch from hindsight.

Interesting peek at multifamily in Toronto and Vancouver, worth a read to see how many rationalizations you recognize (or have uttered yourself).  Nice quote: “If builders stopped building today, there’s five years worth of supply that is about to be delivered, relative to what normal population growth is.” Sound familiar? They’re even starting to do NINJA liar’s loans.

Toronto home and condo prices are amazingly high, the average price for a detached home C$543,993; for condos it’s ‘only’ C$343,835. In Vancouver the Continue reading Canadian Multifamily Bubble? Sadly the US can watch from hindsight.

Distressed Commercial RE Continues to Ebb. What about Multifamily?

Distressed commercial real estate is slowly climbing down from the heights it reached in October 2010, of $191.5B. Forthcoming figures by Delta Associates and Real Capital Analytics will show that distressed commercial real estate in the US totaled $166.9B in January 2012, down $4.7B since October 2011… attributed to a mix of circumstances, starting with extend and pretend…

See the whole article here: Globe St.com: Distressed CRE Continues to Ebb