“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Thursday, December 07, 2006

the pilgrim finally gets back home

I’m back. I’m alive. Yesterday, my birthday, I spent the entire day in transit – from the car that was supposed to pick me up in NYC at 10:30 am, and decided that it had other priorities, to the great Continental guy who, with the largesse of the royal prerogative that came with the keyboard and the quiet corner at JFK, gave me a seat on a plane going in the vague direction of Texas, to the long waits in various airport-expensive bars mulling my bad luck. Since getting to NYC had taken two days, one of which was spent in the Austin airport while they played pocket pool with the flight that I was supposed to take (it would regularly appear and disappear on the schedule of flights, until, heartstoppingly, it stopped appearing at all - at which point I found a harried Delta employee who told me I had to find a flight for the next day), getting away from the place in only one day was a strange sort of mercy. There is something medieval about air travel now – at least, I could have recited the whole fucking Canterbury Tales while waiting around in various departure areas. In these hairy intervals, I was subjected to more tv news than I had seen for the past year. Mostly CNN, although at one point – if I wasn’t hallucinating – Geraldo Rivera was talking to Bill O’Reilly about the lifestyle of Britney Spears. Or was it Britney Spears talking to Geraldo about the lifestyle of Bill O’Reilly? I don’t really think that it matters much – the rule, among celebrity variables, is that they are infinitely inter-substituteable. But mostly it was CNN. It all looked like news from some grim and ruined Disneyland. I noted that the Iraqis still play the bit parts in their war, foregrounding cars and buildings on fire, being out there, unseen, as the clip of the American soldiers firing weapons unspools. I was happy to see that, compared to other years (I see CNN pretty much only when I am in airports), the Rebel in Chief no longer receives wraparound coverage. Perhaps the coin has dropped: this guy is ratings poison.

Well, enough of that. My plan for this post was to talk about the truly tasteless, odorless and colorless essay on Henry Adams by Peter Heller in the Smithsonian, timed for the centennial of the Education. LI is always glad to see a revival of interest in Adams, but … this article simply gives you the cheat sheet of his life, which do we really need? Adams survey of the 'stupid nineteenth century' - as a famous fascist pamphleteer named it - was much fiercer than Heller depicts. Heller is right, however, that Adams is curiously absent at the moment – for instance, there wasn’t a single review of Pynchon’s recent novel, which starts in 1893, at the Colombian Exhibit, that collated it with the Education chapter on the Virgin and the Dynamo. This is odd, insofar as it is an old, petrified part of Pynchon criticism that V and the early stories took a lot from Adams, and in particular Adams amateur’s fascination with entropy.

Huh. Well, I might get back to that column. On the other hand, I have another post on Coriolanus written up in a notebook, and a post on the column by Pearlstein in the WP about the secret, 1987-like cancer in the financial system – to wit, the current craze for private equity companies, and their use of the old LBO techniques of the eighties. Here’s the gist of the Pearlstein column:

“…But enough hand-wringing over the residential real-estate market. Not much anyone can do about that now. The new story is the bubble in the commercial real estate market -- offices, hotels and retail establishments -- which has generated spectacular returns for investors over the past few years.

Prices have risen to ridiculous levels, relative to the risk involved and the amount of income generated by these properties. But even those prices don't seem to scare away pension funds, university endowments and Arab investors, who continue to pour hundreds of billions of dollars into real estate investment trusts, private-equity real estate funds and hedge funds that specialize in real estate finance.

Exhibit A is the purchase of Equity Office Properties, the country's biggest owner of office buildings, by the real-estate arm of the Blackstone Group, a private equity firm. What you need to know about this $36 billion deal is that 80 percent of the purchase price will be financed with debt, and that the "cap rate" -- the rate of return from next year's rental income -- is an estimated 5.5 percent.

What, exactly, does that mean?

First of all, it means that the lessons of the past five real estate crashes have, once again, been forgotten, and real estate has once again become a highly leveraged investment class. So, when the inevitable downturn finally happens and the price falls by more than 20 percent, there's a pretty good chance the value of the collateral will fall below the value of the loans, which in financial circles is considered a no-no. To make things even worse, it's a good probability that these are interest-only loans, which means that even in good times, the borrower is not paying down principal.

These numbers also mean that once you take into account things like the need to invest each year in maintaining the properties, investors will earn a premium of less than 1 percentage point for the risks associated with real-estate investing -- little things like tenants who don't pay rent or vacant property that can't be rented -- as compared with risk-free Treasury bonds. As risk premiums go, that's as low as anyone can remember.”

LI has a theory about business cyclical phenomena like this and their derivation from increases in wealth inequality (operating as a special case of the regular Keynesian supply and demand cycle) that would have interested Adams, always a sucker for theories about patterns in history. We will, someday, spring it on you all…

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