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August 4, 1989
The bond market's soft landing turned into a cartwheel this morning as unemployment fell .1% to 5.2%, and NonFarm Payroll climbed a surprisingly healthy 169,000. Mortgage discounts are up most of a point, and are headed higher for the short term.
As usual, borrowers will be hopelessly confused by the fall of the Prime Rate to 10.5% while mortgage rates rise.
Most data releases this week showed a gradually slowing economy. The Purchasing Managers Index, maybe the best single indicator available, fell to 46 the lowest in six years and just above recession levels. Leading Indicators slid .1%, Factory Orders rose .4%, and Machine Tool Orders jumped 16% (though still 18% below last year). New Home Sales rebounded 5.5%, but are still weak compared to last year, and Construction Spending hit an eight month low.
As the S&L bailout bill makes its way out of Congress like Indiana Jones from the Temple of Doom, the most important issue is lost in the posturing of the priests. The central real estate debate of the next five years will be how to unload $400,000,000,000 "worth" of real estate deals seized from folded S&Ls.
The bill provides for the formation of the "Resolution Trust Corporation" to dispose of S&L assets. The last liquidation try was FADA (Federal Asset Disposition Association), formed four years ago to unload 1% of the assets RTC will face. FADA is still in operation (sort of), and miracle marketing ploys like "Cash Only!" have left it with much of its inventory and a fat payroll.
No one knows what this real property wreckage is worth. If good value can be realized, we may recoup much of the cost of the bailout. Realizing good value is not the leading skill of the Federal government. However, any effort to get this property back to private management has been blocked by Congress and real estate people afraid of a fire sale.
Fact is, there has been a bad fire. If you think leaving brain dead S&Ls open lost a lot of money, wait until you see how much value real estate can lose while managed by bureaucrats with no profit motive. By the time this is over, the honey pot at HUD will look like disciplined management, and the only "resolution" in RTC will be never to let the government do this again.
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