Elizabeth Barrett Browning wrote of love beautifully in the 1800s when she penned Sonnet 43. The first two lines are very well known: "How do I love thee? Let me count the ways."
Let me count the ways . . . those words resonate with me these days as I view what is happening to the U.S. and world economies, what is happening with lending, and its impact -- consequences you might say -- on commercial/investment real estate.
The Associated Press is reporting that President Barack Obama this week will announce $1.5 trillion in new taxes on an already beleagured American economy. The core of the president's plan totals just more than $2 trillion in deficit reduction over 10 years. It combines the new taxes with $580 billion in cuts to mandatory benefit programs, including $248 billion from Medicare. Hmmm..... THAT will be mighty popular. My guess is there will be so much pushback from the public about cuts to Medicare that that option will be dropped. But the tax increases will stay in place.
I play chess, too. That's how these things usually work.
Congress, historically, has had a way of fixing serious problems by instituting financial regulations that often make no sense. But the Members of Congress mean well, just ask them! Now the White House, while the printing presses continue to hum 24 hours a day cranking out American greenbacks and flooding the world with a plethora of inflation-raising paper (yes there is inflation; been to the grocery lately?), is poised to further stifle hiring by heaving far higher taxes onto the very people and organizations most sorely needing relief so that they can create sorely needed jobs.
Why the tax spike? All in the name of balancing the budget and reducing the national debt. Both of these issues are important. But so very often, the "solutions" coming out of Washington cause far more harm. Unintended consequences, as I have written about previously.
It is no wonder no one is hiring. Regulations of all kind are a moving target. No one can put together anything as simple as a two-year plan because the rules for doing business may change next month, or next year. Or not. No one knows.
Case in point. My partner and I have a transaction we are trying to close. Every lender we have talked to agrees -- this is a hell of a deal. A transaction that makes sense. Strong buyer. Great property. Nationally known tenant. Willing seller. And immediately afterward, each lender says the following, "this deal makes sense." they promptly hem and haw as to why they can't do the deal.
Banks and mortgage companies are incredibly risk averse these days. If there is any finger-pointing to be done, it would lead in a straight line to Washington DC. The administration, despite its recent clamor urging the public to push Congress to "pass this jobs bill," has more or less declared war on job creators via rhetoric, plans for additional taxes, and an orgy of crushing, oppressive, ponderous regulations designed to punish industry rather than protect consumers. From new financial regs that irrationally directly impact CRE practitioners' ability to advise certain clients, to contradictory labor relations board missives prohibiting companies from expanding. The list is long. The media doesn't help, chiming in without asking any hard questions of those who propose additional onerous regs. Trust me, I know. I am a former working journalist and the dearth of questions from the Fourth Estate of this administration is odd, if not troubling.
A lender's job is not to lend money, it is to make money. As is any other public or privately held business. a CEO is held responsible for such. If the company is publicly held, like most big banks, the CEO is beholden to shareholders, which by the way are comprised of moms and dads' mutual funds, pension funds owned by unions (among other organizations), teachers retirement funds, and so on. These days to lend very much without knowing what regs are going be is a huge risk. In some cases, risks not worth taking unless the lender charges unrealistic interest rates. Which stifles CRE transactions.
When you think about it, risk and reward used to go hand in hand. But with this administration, risk takes on a far more draconian meaning.
Is CRE moving now? Yep, in starts and stops, with many projects being funded by pensions and REITs, and the balance being funded by traditional lenders dealing with buyers with whom they already have a relationship. A contact of mine at a one such huge traditional bank said recently, and this was widely suspected but he confirmed it, that having accounts there, or transferring funds there, only gets you a look by them. No guarantee they will have any interest at all in your project.
Back to the deal. Smaller transactions are requiring buyer and seller to get VERY creative, utilizing seller financing, lease to own, combination transactions, indentured/collateralized notes held to maturity, and more.
In the larger scheme of things, several CEOs have flat out told Washington the way to grow the economy, and jobs, is for lawmakers and the White House to get out of the way. Proposing trillions of dollars in new taxes at a time when the economy is at a dead stop isn't just getting in the way. It is is all about people who don't understand Economics 101 putting up roadblocks (with a smile and a speech), roadblocks that are candy-coated populist "solutions" being described as needed for growth. Right.
Ever hear of perfuming the pig?
How is the economy stifled? . . . let me count the ways. Did you know the federal government borrows money from banks? Its a guaranteed 3 percent or so return, which is safer than lending to industry that is is sputtering because of regs imposed by that same federal government. No wonder traditional lenders are hesitant to take risk.
Profligate, isn't it?
Until Washington gets out of the way and quits trying to fix things (this White House and its associates in Congress desperately want to be seen as "doing something") that clearly and historically have the ability to heal themselves, we will continue to be plagued with untold and exponentially harmful unintended consequences.