The Other Shoe

Lack of money is the root of all evil.
-- George Bernard Shaw (1856 - 1950)

Now that Manhattan real estate has started to drop – both the number of sales and the dollar amounts – it is abundantly clear to all those who enjoy reading the tea leaves that we are in for a difficult few years. Real Estate Intel is that the condo market has already seen 15 to 20 percent drops in prices and that 30 percent reductions are in the future.
And, Hamptons brokers who tell you the truth describe the one remaining selling season that is left (there used to be spring and fall) as “quiet.” Some brokers have used the word “spooky.”

For the last few years, the SoHo Journal has been describing what was about to take place and we have now arrived at that point. But, the conflicting information emanating from Wall Street columnists leads some to believe that we are arriving near the bottom – both in stocks and bonds and real estate.
Don’t believe it. We are just at the beginning.
The people to listen to are not the gurus or the reporters or the brokers involved in the marketplace.
The people to listen to are the money guys. They’re scared.

What they know, they learn from talking to hedge fund managers, underwriters, investors, and banks. They know that there is a lot more pain to come in the real estate debacle – from write-downs and foreclosures – to massive layoffs on Wall Street. The workers who are laid off, incidentally, would be the people who buy condos in Manhattan and summer houses in the Hamptons.
And, the money guys also know that Europe is about to be hit as well.
How many people know, for example, that buyers in London typically could buy that Townhouse in the right neighborhood with 100% financing?
Germany is now having trouble – Deutche Bank just wrote off $7 Billion.
Switzerland’s UBS just wrote off $19 Billion. The Eastern bloc is not far behind and less well capitalized.
So much for the much-vaunted cheap dollar theory behind real estate sales in Manhattan and the Hamptons.

The most realistic prediction about where we are headed is a serious recession that could take 5 years to play out. The most pessimistic approaches a meltdown of 1929 proportions.
If there is not another MUB (monster under the bed) similar to the Bear Sterns bailout, the next 5 years may only be a severe recessionary period during which lots of people lose their jobs and their homes and cash is hard to come by.
If the economy becomes unhinged by a serious lack of cash worldwide, which could be precipitated by a bad bet in the shadow economy, which has a total leveraged debt of $516 Trillion dollars, – all bets are off.
Essentially, derivatives are bets whose ultimate payday is guaranteed only by the party holding the paper -- if you can figure it out.

So, as the party winds down, a few things will change substantially. There will be a severe shortage of cash, even the weakened dollar. There will be little mortgage money outside of Fanny Mae government paper with a limit of $550,000 (which gets you nothing in the Hamptons or Manhattan), and will replace the “liar loans” with the kind of loan application that the Feds can prosecute you for.
There will be substantially less in tax receipts. This will cause some Village, Town and County coffers to dry up to the tune of a Chapter 11 filing – lest you were thinking of buying some municipal bonds.

Prices for real estate will continue drop fueled by the lack of cash, the lack of mortgages and the lack of qualified buyers. Foreclosures will soar and vacant houses will grow, along with the number of properties on the remaining real estate broker’s listings.
While Towns and Villages in the Hamptons will continue to dip into the Community Preservation Fund, the tax base will continue to dry up. Even East Hampton Supervisor McGinty’s “loan” from that Fund, currently being investigated by D.A. Spota, will be looked upon as a necessary evil as municipalities start to go under.

The fact that the Town of Southampton has chosen to operate their racist immigrant witch hunt at this point in time – criminalizing landlords for renting houses to Guatemalans, Mexicans, Ecuadorians – will only exacerbate the problem in the Hamptons.
It will accelerate the rate of foreclosures, hasten a landscape of boarded up houses and force even more properties on an already bloated market. The Conservative Republicans will bring down an already damaged economy to satisfy a racist agenda.
The “Prime” borrowers who have been holding on in this real estate market will be pushed over the edge.
This has already been reported by brokers who complain that houses which were formerly only on the market for sale – are now also on the market for rent. And, the rental prices reflect the numbers needed to pay a mortgage -- not the realities of what people in the marketplace will pay. The new rental law, which is unconstitutional and racist, will fix the rest because the only tenants who can afford to rent (or who will actually pay once in the door) are the targets of the Town. They want Latinos gone and they want young people to go to New Jersey. The line of politicians dipping into the Preservation Fund will grow quickly.


For those of you who do not get any news in the Hamptons from the local media, there are a few election notes worthy of reporting.

George Motz is described as a Mayor running for re-election in Quogue.
What is left out of the crib notes by the Southampton Press reporter who did the original story when it was mistakenly covered and almost got him fired – is the fact that Mayor Motz was indicted for playing games with client money at his investment firm. According to the S.E.C. complaint, a little ploy called “ticket-switching,” was alleged. His wife is still the Quogue Justice Court Judge but they are rumored to be holding on to each other by a thread – partly due to the fact that he has a girlfriend.


Conrad Teller, Mayor of Westhampton Beach, known for wanting to keep the Village like a set for Mayberry RFD – replete with tumbleweed rolling down the street during the winter – is being challenged after his first term.
Currently one of the hottest issues defining his time in office is whether the religious people will be allowed to have markers in the Village allowing Orthodox Jews to benefit from placements that guide the path to the synagogue. Some Villagers have described the Mayor as someone who is anti-Semitic and during a recent Village Board meeting, derogatory comments were tolerated from the audience.
Some of the members of the audience decried the fact that allowing these ervuls would bring more Jews to the Village.
Well, hello, for a Village that is anti-business, wouldn’t that be a godsend?

The challengers are reportedly former newscaster John Roland, who lost by only 6 votes in the last election – and Mark Raynor, a retired police officer who is business friendly. One will run for Mayor and the other will run for a Trustee position.