Category: Uncategorized

Fabiani Watch: Trust Me I'm a Lawyer

икониLove this sentence in today’s Union-Tribune story on AEG saying the days of publicly-financed sports stadiums are at an end:

From his office in San Diego, Chargers special counsel Mark Fabiani said he doesn’t share that view.

For seven years starting in 2002, Fabiani said the Chargers would construct a new stadium without taxpayer support. Then for the past 16 months, he has maintained the opposite — that one couldn’t be built in downtown San Diego without a public subsidy.

Everyone loves an early inflation

Everyone loves an early inflation. The effects at the beginning of an inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the later effects, but the later effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.

— Dying of Money: Lessons of the Great German and American Inflations, Jens O. Parsson, 1974

Vantage Pointe: Quebec's Folly

Kelly Bennett at Voice of San Diego has another interesting story today on Vantage Point, the massive downtown condo complex that’s on the verge of foreclosure.

The 40-story Vantage Pointe, downtown’s biggest condo building, is stuck with 679 units that it can’t sell.

Developers are on the hook for a $210 million loan — the largest construction loan on a single residential building in San Diego history. Lenders filed a notice of default in March with a loan balance of $197.8 million.

Writes Bennett:

Now the building’s being handled like a giant hot potato. While the rest of the downtown market shows signs of stabilizing, no one has yet found a way to make Vantage Pointe profitable enough. The developers have been trying for a couple of months to find a buyer for the whole project or to become a partner. But the bank separately stuck up its own for-sale sign seeking buyers for the mortgage.

The developer is Pointe of View, a Calgary-based company, which formed a California partnership, Pointe at Balboa LP, to build this colossus.

The money for the project came from Caisse de Depot et Placement Quebec, Canada’s biggest pension fund, with $130 billion in assets. In 2008, la Caisse posted a $40 billion (!) loss, due in part to devastating losses on its U.S. real estate portfolio.

ALTA Responds to "Title Insurance is a Scam"

Jeremy Yohe of The American Land Title Association, the industry’s mouthpiece, has written a lengthy response to my earlier post about title insurance being a scam.

You can read the original post here and Jeremy’s comment appears here.

In his comments, Jeremy has addressed some of the concerns I raised in my piece, but did not address the well-established inefficiencies and structural flaws in the multi-billion title insurance industry.

Jeremy wrote, “A homeowner’s title insurance protects the owner for as long as they or their heirs on the property. And only need to be paid for once.”

  • Why then was my $625 title insurance fee necessary on my refinance? Chain-of-title, the major service provided by title insurance, was previously established in my case. A Lexis search would have turned up a lien or a judgment. Interestingly, though, according to CTLA’s Title Wizard, I would have paid LESS in title insurance if I had purchased my home instead of refinancing it.
  • How does ALTA explain the findings of “reverse competition” in the mortgage industry that date back to the 1980 Peat Marwick study for HUD? (Also see Consumer Federation of America, 2006 testimony before Congress; California insurance commission study on title insurance)
  • If title insurance is performing a valuable service and the “preventive measures” are keeping the title insurance industry’s loss ratio low as Jeremy suggests, why weren’t these savings passed along to me and others in the form of lower fees? Are title insurers colluding to keep prices high?
  • How is it that only one company, Entitle Direct, markets title insurance directly to consumers and, as a result, is able to offer me and many other the same service for 35 percent less? Why does Entitle Direct have such a small share of the industry? Am I a customer or merely a fee payer?
  • Why shouldn’t California copy Iowa and just put an end to the title insurance racket?

Curious to hear the answers.

Negative Equity in the San Diego Housing Market

San Diego’s housing market may have much further to fall.

So says a new report from the NY Federal Reserve that calculates how many homeowners will become renters over the next few years.

In San Diego, 16 percent of homeowners will become renters, according to the study

This measure assumes that homeowners who owe more than their homes are worth — i.e. negative equity — are in effect renters.

Since the homeownership gap reflects the extent of negative equity in the housing market, it is also a gauge of the potential downward pressure on the offcial homeownership rate. Assuming that house prices do not appreciate over the next several years, negative equity households will very likely convert to renters when they move out of their current homes because they will be unable to save enough to cover the negative equity, the transaction costs of selling their existing home, and a down payment on another home. As these transitions from owning to renting take place, the homeownership gap will narrow, with the offcial homeownership rate dropping toward the effective rate.
The official rate of homeownership in San Diego is 55 percent. But the Fed’s analysis of federal loan data shows that only 39 percent of homeowners will get some money back when they sell.
The difference between these two numbers yields the homeownership gap. And barring a huge rise in prices, that’s where we are headed.
It’s bad, and it may even be worse. According to the paper, these numbers may actually understate the extent of the problem.If you use Case-Shiller’s numbers, only 35 percent of San Diego homeowners have positive equity.  So the gap grows to 20 percentage points.
This has far-reaching implications:
Consider, for example, that the Case-Shiller-based effective homeownership rates for … Detroit, New York City, San Diego, and San Francisco are all under 50 percent. That is, the median household in these areas is in a negative equity position and no longer has strong financial incentives to behave as an owner. While the effects will vary with the distribution of negative equity households across the municipalities within these metro areas, a high share of these households could result in reduced maintenance of the housing stock, an increased risk of housing vacancies, and less stable neighborhoods over time—developments that could have repercussions for local law enforcement. Moreover, the predominance of “non-homeowners” in these metropolitan areas could lead to a decline in citizen participation in local affairs, with a concomitant loss of vigilance over the quality and ef?ciency of public services and institutions.

San Diego County Pension Lowers Rate of Return

San Diego County’s pension fund just handed the county bill for more than $30 million a year yet no one seems to have noticed.

Every three years, San Diego County’s pension fund looks into its crystal ball and decides what it expects investments returns will be over the next 50 years.

It’s arguably the most important and difficult decision the board has to make. Even a small change can force the county to cough up millions of dollars each year.

Yesterday, the board of the San Diego County Employee Retirement Association lowered its assumed net rate of return from 8.25 percent to 8 percent effective July 1, 2011. (Watch the meeting online here.)

A quarter percent may not sound like much, but it’s a change that will force the county to pay 3 percent of payroll each year. Using last year’s payroll numbers, that works out to roughly $33.88 million.

The 8 percent assumed rate of return represents the pension’s best guess about how the fund will do in the future, so that the county can set aside money to ensure the plan is well funded.

The shift to an 8 percent assumed rate of return moves San Diego County’s pension more in line with other big state pension funds. CalPERS, the $200 billion retirement system, is reviewing its assumed 7.75 percent rate of return and will make a recommendation to the board whether to lower it later this year.

Three years ago, the pension’s actuarial consultant, Segal Group, recommended an assumed rate of return but the then chief investment officer, David Deutsch, promised that he could generate the additional 8.25 percent with his Alpha Engine.

Deutsch resigned under pressure shortly before the pension reported losses of $2.4 billion for the 2008-2009 fiscal year.

The assumed rate of return is perhaps the most important variable in calculating a key barometer of a pension’s health known as the funding ratio — the ratio of assets to liabilities. SDCERA’s funding ratio stands officially at 91.5 percent, but that’s only because of an accounting practice that defers losses over several years.

If last year’s $2.1 billion loss were to be recognized right away, San Diego County’s pension fund would only be 65 percent funded, according to a report by an independent consultant. That’s well below the 80 percent that pension experts regard as healthy.

Anwar Awlaki: Book Critic

Imam Anwar Awlaki, the jihadi superstar, is a big fan of Charles Dickens, but he hates Shakespeare.

The US-born Awlaki was forced to read English classics during his 18 months behind bars in a prison in Sana’a, Yemen. I say forced because a guard had forbidden him from reading the Islamic literature he preferred, so he asked his family to bring him whatever English novels he had lying around.

Awlaki described his encounter with English literature in a fascinating post on his now-defunct blog that was written well before he publicly justified killing American civilians.

Awlaki’s taste in books reveals much about him. Consider his reaction to the first English-language novel he read in prison: Herman Melville’s Moby Dick.

I cannot say that it was a good novel; but in jail, anything is good.

Now that Awlaki is being hunted like the white whale by U.S. forces, I wonder if he has given second thought to his brusque dismissal of Melville’s masterpiece.

It doesn’t take much imagination to see this highly symbolic tale of obsession and revenge as an allegory for post Sept. 11 America. Literary critic Edward Said sees bin Laden as our modern white whale hunted to the ends of the earth; journalist Stephen Kinzer sees in Captain Ahab the figure of George Bush, lashing out blindly at the force that has wounded him. Another parallel: The Pequod is hunting for the whale oil that lit 19th century New England homes.

How could Awlaki have failed to grasp these symbols of good and evil?

After that, the burgeoning jihadist read Shakespeare’s King Lear.

Shakespeare was the worst thing I read during my entire stay in prison. I never liked him to start with. Probably the only reason he became so famous is because he was English and had the backing and promotion of the speakers of a global language.

Still, Awlaki pressed on. He turned next to Charles Dickens. Here he fell in love.

I read Hard Times thrice. So, I ordered more Charles Dickens and read Tale of Two Cities, Great Expectations, Oliver Twist, and his masterpiece: David Copperfield. I read this one twice.

What fascinated me with these novels were the amazing characters Dickens created and the similarity of some of them to some people today. That made them very interesting. For example: the thick and boastful Mr. Josiah Bounderby of Coketown was similar to George W. Bush; Lucy’s father, Mr. Gradgrind, was similar to some Muslim parents who are programmed to think that only Medicine and Engineering are worthy professions for their children; the amazing cruelness of Stephen Blackpool was similar to some people who appear on the surface to be decent and kind human beings; and Uriah Heep was similar to some pitiful Muslims today.

Not to take anything away from Dickens, but he’s a very different writer than either Melville or Shakespeare. A journalist by training, Dickens used his considerable storytelling gifts to call attention to the less fortunate with the goal of social reform in mind. But Dickens, unlike Melville and Shakespeare, wasn’t wrestling with God and the nature of human existence.

Although clearly bright, Awlaki’s taste in books reveals him as a man lacking in imagination — the true sign of genius.