The Newsweek Essay Contest

My dear cousin, Nancy, figured out a way to keep me busy and challenged while I was incarcerated.  Nancy writes the blog, "Minding My Own Business" (http://shilohpup-nwc.blogspot.com/) a very fun blog.  She knew I liked to write also so she found me the Newsweek essay contest called "My Turn Editor".  At once I set out making entries to the contest.  I rarely was able to watch anything of significance on the TV but I was lucky enough to see O'bama's first Address to the Nation and I had some thoughts I wanted to share...they seemed important at the time.  Following is my cover letter and essay entry, it reveals some more of that inside information, although at a very different level.

February 16, 2009

My Turn Editor
Newsweek
251 West 57th Street
New York, NY  10019-1894

Dear Sir or Madam:

I previously wrote on February 4, 2009 explaining my situation.  I want to make entries to your contest but am unable to obtain use of a computer to email my entries, as I am incarcerated with my case currently under appeal.

I have enclosed my second entry to your contest regarding O'bama's recent Address to the Nation.  Hopefully you will consider it for your contest as I believe I have a unique perspective which may be of interest to your readers.


Thank you in advance for your consideration of my entry.


Sincerely yours,


Audrey A. White

LESSONS FROM THE PAST

     O'bama's Address to the Nation was interesting and felt like a rerun movie to me.  He talked about the lack of confidence in banks and the FDIC's ability.  This reminds me of the Savings & Loan institutions/banks and the FSLIC/FDIC situation of the late 1980's.  I worked through all aspects of that as an accounting and finance consultant to this country's #1 real estate developer of the time, The Trammell Crow Company.  There are many parallels to be drawn.  Oddly enough the benefit of the bailout did not necessarily go to the average American citizens but filtered back to the moneyed people. 

     Here is how it worked.  In the 1980's the real estate market (both commercial and multi-family housing) became grossly overbuilt, as a result of tax shelters and lenient lending practices.  The 1986 Tax Reform Act was passed phasing out the tax shelter in passive investments and overnight the equity markets dried up.  The real estate market, being overbuilt left extremely high vacancy rates throughout the country.  Real estate developments could no longer pay their debt service.  In a loss situation these real estate interests were unable to turn to the equity partners for funding since they could no longer write off the losses.  Consequently there was massive defaults on loans as real estate entities could not pay the interest on these huge loan balances, much less the monthly amortization of principal.  

     Throughout the nation lending institutes were forced to foreclose or work-out a debt restructure on their real estate loans.  With the high vacancies the reduced  value of the collateral for those loans became evident, the values had taken a nose dive.  The lending institutes no longer held appropriate collateral and for all the foreclosures they were left holding over-valued real estate, negatively impacting their liquidity ratios.  FSLIC and FDIC (to a lesser extent) were forced to close down high volumes of financial institutions, paying back depositors their insured funds, depleting FSLIC and FDIC sources and now leaving these government agencies with enormous inventory of deflated real estate properties.

     While most small and medium sized developers went bankrupt, the belief among the few large developers, was the market was simply correcting itself for inflated values created by the FUNNY MONEY, and was long over due.  The men I worked for did not see this economic upheaval as a bad thing but an opportunity.

     The effect of this "correction" was to clear out the little men and remove the middle men and allowed the big guys to get bigger, as they reorganized and took advantage of the bailout money.  They were seen as weathering the storm although they too had many foreclosures and bankruptcies among their thousands of individual real estate entities (several tiers of entities for each property).  They had clearly participated in the use of the FUNNY MONEY, collecting their fees on the front end of each real estate deal and minimizing their exposure.  They knew the markets were overbuilt but so long as the money was there, they were building.  They were eventually given preferential treatment in the work-outs because the lending institutions and insuring government agencies could not continue to grow or maintain their real estate portfolios.

      The major developers were now recognized as the experts in real estate (unlike the government bureaucrats), those having the know-how to reverse and correct bad construction, manage the lease up and sale of properties (albeit at rock bottom prices).  They were given the work and received substantial fees from the government to get it done.

     In addition, the major developers formed joint ventures with major investment sources, like Mutual Benefit and Paine Webber.  They created what they called "Vulture Funds" and bought these properties at reduced prices from FSLIC and FDIC and continuing lending institutes, hence relieving the real estate-heavy balance sheets of lenders and government agencies and further enriching themselves with real estate that had no place to go but up.

     The acquisition fees, development fees, rehab fees plus property and asset management fees grew exponentially for these wealthy few.  The shift of wealth in this country only moved up the food chain with average Americans remaining very much the same.  Yes, jobs were created, but at the bottom of the pay scale.  The labor force was paid little because so many were unemployed and seeking to put food on the table.  The usual equation was in place - too much supply, not enough demand: therefore labor rates low and consequently, profits to the few remained high.  The major real estate developers continued to rake in the majority of the bailout money.

    Today we have a similar situation in many ways.  Therefore, the hard questions for O'bama's Stimulus Bill have to be asked:

• Does bailout reward bad behavior?   YES 
• Is it irresponsible to do nothing?   YES
• Does transparency and accountability need to be in place?   ABSOLUTELY
• Who needs to see this transparency and accountability?  THE AMERICAN PEOPLE.  The data should be made public.  In looking at the transparency, look at arm's length transactions.  As part of that information - the examination must include disclosure of who is benefiting - who is behind the corporate and partnership veils - who are the shareholders and who are the partners/employees receiving the bailouts and profits generated.  Take a hard look at employees and consultants being paid within these entities.  Notice who owns the businesses they do business with.  Is it the same people?

     Correction of the system is painful for many.  If we do not learn from the past, then, in another 20 years we will be revisiting once again the underlying cause - shoddy economic policy.  Having lenient lending practices in an attempt to boost the economy is always short lived and will always cost us a lot of energy and resources that could otherwise be used for a greater cause.

     Perhaps if Bush was not so set on trying to convince the American people that our economy was strong and we had no problems and if we were not so set on needing to believe him, then we would not be in this situation again.  Now the history lessons are here and all of us will need to heed this knowledge in our quest to become much more responsible citizens, as O'bama has called us to be.

It was not published as you may have guessed.  In retospect, this might have been useful information.  At any rate, the essay contest served its purpose...it gave me a purpose and some goals.  All vitally important in maintaining sanity.  They may have surrounded me with bars, walls and locks but they could not keep my thoughts inside their walls nor would I allow them to take away my beliefs.