Speaker 1: Hello, and welcome to another episode of the Odd Loots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe wisnal So. Joe, I
Speaker 1: feel like we've hit probably all the major crunch points
Speaker 1: in the big market sell off recently except one. I'm
Speaker 1: not convinced entirely that we've hit all of them, but
Speaker 1: I do think we have hit several of the major
Speaker 1: crunch the big ones. Okay, that's fair, the big one,
Speaker 1: all right, But there is a pretty big one that
Speaker 1: is looming that we haven't talked about yet, and that
Speaker 1: is what is going on in the mortgage market. That's correct. Um,
Speaker 1: We've you know, it's kind of interesting because, you know,
Speaker 1: there's a lot of comparing contrast to the two thousand
Speaker 1: and eight two thousand nine crisis. We know that two
Speaker 1: thousand and eight two thousand nine crisis more originated within
Speaker 1: housing and mortgages and then spread outward. This one more exogenous,
Speaker 1: but eventually they kind of converge with some some of
Speaker 1: the same pressure points because if the economy shuts down,
Speaker 1: people can't pay their rent at their mortgages right exactly,
Speaker 1: And we've already seen well people who can't actually pay
Speaker 1: their rent and some companies that are also saying that
Speaker 1: they just won't pay their rents. So Subway and Um
Speaker 1: that mattress company that whose name I've forgotten, Mattress Firm
Speaker 1: is that it? I think they said that they're going
Speaker 1: to pay their rent either. So clearly we're sort of
Speaker 1: getting to a point in time where there is going
Speaker 1: to be a big confrontation between landlords and their tenants.
Speaker 1: But the other thing that's happening is just widespread chaos
Speaker 1: within the financial system for mortgages it's self. So we've
Speaker 1: had mortgage bonds, both residential and commercial, just plummet in value.
Speaker 1: And we've also had this thing whereas the bonds plummet
Speaker 1: in value, big banks start making margin calls on funding
Speaker 1: that actually financed those bonds. Yeah, that's exactly right. And
Speaker 1: of course the two brings to mind prior periods of stress,
Speaker 1: because there's always the question of well, how do you
Speaker 1: make a mark in an asset during a period of
Speaker 1: extreme distress, what's fair when our margin calls appropriate? Uh?
Speaker 1: These are very difficult questions to answer, especially in some
Speaker 1: of the you know, very liquid, more esoteric parts of
Speaker 1: the market where there just may not be an obvious
Speaker 1: mark to go on during a period of extraordinary a liquidity,
Speaker 1: right and at the moment a large parts of the
Speaker 1: mortgage market are basically a liquid So today we have
Speaker 1: the perfect a person who's going to talk about this
Speaker 1: with us. We're going to speak to Tom Barrick. He's
Speaker 1: the CEO of Calling Me Capital, one of the biggest
Speaker 1: real estate investors out there. He's also written a post
Speaker 1: up on medium everyone should go check it out that
Speaker 1: sort of talks about the troubles in the mortgage market
Speaker 1: and also some suggestions from him about how to ease
Speaker 1: the pressure. So we're going to get into it. Tom,
Speaker 1: Welcome to the show. Thanks so much for coming on.
Speaker 1: Thanks Racey, great to be with you and Joe. So,
Speaker 1: I guess just to begin with, could you maybe give
Speaker 1: us some color on what the mortgage market or the
Speaker 1: real estate market actually looks like at the moment. Yeah,
Speaker 1: of course, HiT's in in chaos, as is as most
Speaker 1: of our lives. While we have this intersection of two crisises,
Speaker 1: the the unforeseen and and known coronavirus and COVID nineteen
Speaker 1: and and for the first time and anybody's memory or
Speaker 1: history assessation of revenue. So when when we look at
Speaker 1: the setting that we're in, a banking system that became
Speaker 1: well healed and structurally much different than the banking system
Speaker 1: there was the subject of restructuring in two and maybe
Speaker 1: it's worthwhile just to to look at the great Financial Crisis,
Speaker 1: which everybody uses as a metric against which to have
Speaker 1: some historic perspective as to what happened then and what
Speaker 1: we might do now, but a very different set of situations.
Speaker 1: The two thousand eight financial crisis really started in two
Speaker 1: thousand seven from an oversupply of everything and an exogenous
Speaker 1: structural defects and financial instruments that were being created and
Speaker 1: were sent around the world, these weapons of mass destruction,
Speaker 1: which bundled mortgages, which which gave individuals of of residential
Speaker 1: consumption and addiction, and the same in the commercial mortgage markets,
Speaker 1: and the same in the corporate markets. So that collapsed,
Speaker 1: without wasting too much time on on why and when,
Speaker 1: had some of the same resolutions, and that the Fed
Speaker 1: and the Treasury had to step in along with the
Speaker 1: arsenal of other regulatory bodies. So when we think about
Speaker 1: liquidity and banking, we today have a banking system and
Speaker 1: we have a non bank system. We have Main Street,
Speaker 1: and we have the capital markets. And for real estate,
Speaker 1: and most of your listeners are too young to remember,
Speaker 1: but prior to was really no capital markets. Real estate
Speaker 1: was an investment by individuals. There was very little shared
Speaker 1: participation in commercial realists. Say, lenders were a life insurance companies,
Speaker 1: pension funds primarily, and your local bank would make a
Speaker 1: loan to you on a commercial project based on your business.
Speaker 1: But rates had been invented but not widely utilized, and
Speaker 1: there really was no such thing as commercial mortgage backed securitization.
Speaker 1: So on the capital market side, have you thought for quadrants?
Speaker 1: You have public and private equity, and you have public
Speaker 1: and private debt. And what we're what we're watching today
Speaker 1: is the public side, the benefits side of the public.
Speaker 1: What you had liquidity, had transparency, have brought participation. You
Speaker 1: had higher yield so that the individual mom and pop
Speaker 1: was able to participate in things that theretofore they had
Speaker 1: never had the opportunity. And there in lies the benefit,
Speaker 1: and there in lies the problem today is that liquidity,
Speaker 1: which allows you to vote with your feet on a
Speaker 1: daily basis, doesn't really work well for real estate when
Speaker 1: it's reposition because the market for an asset, if you
Speaker 1: just think about a clearing price and and things that
Speaker 1: everybody can touch of your house, if you have a
Speaker 1: willing buyer and a willing seller. Still it takes months
Speaker 1: for commercial property even longer. So to be able to
Speaker 1: trade away of valuation in an hour or an afternoon
Speaker 1: in a unforeseen and unintended crisis is difficult. So if
Speaker 1: we just take the commercial mortgage market in general, it's
Speaker 1: if it's in the United States, it's about five trillion
Speaker 1: dollars in loans, and those loans are held by banks,
Speaker 1: insurance companies, mutual funds, reads, other institutions, endowments, and what
Speaker 1: happens to them is non bank banks. And maybe we
Speaker 1: still up there for a minute. A non bank bank
Speaker 1: is a commercial mortgage read of BBC another institution who
Speaker 1: originates commercial mortgages, pulls them together and creates tranches of securitizations.
Speaker 1: Why does that happen? Why do banks not do that?
Speaker 1: After two eight the regulatory environment for banks changed dramatically,
Speaker 1: and Dodd Frank, which was a needed and worthwhile addition
Speaker 1: to the regulatory sector, put severe capital regulations and restrictions
Speaker 1: on the normal banking sector. And they needed greater equity levels,
Speaker 1: greater enhancements. So if if we if we look at
Speaker 1: it as as oil and vinegar and say that the
Speaker 1: the oil is a securitization part, and what the marketplace
Speaker 1: needed was more credit enhancement. So it it it, it
Speaker 1: needed the vinegar on top, so that in the event
Speaker 1: of a crisis, the first lost period would be the vinegar.
Speaker 1: And after the two thousand and eight Great Financial Crisis,
Speaker 1: the amount of vinegar necessary for those credit enhancements became
Speaker 1: dramatically increased, as did the structural component of these securitizations.
Speaker 1: So all the all the safety toggles that were built
Speaker 1: in them too complicated for us to talk about now,
Speaker 1: but the rating agencies and the structures of safeguards for
Speaker 1: master services and special services. But that was the that
Speaker 1: was the key to the liquidity in the commercial real
Speaker 1: estate lending market. So you now had intermediaries who were
Speaker 1: originating these loans because the bank's no longer wanted to
Speaker 1: do it. Dodd Frank created a regulatory environment for the
Speaker 1: Bank of the f d i C, the o c C,
Speaker 1: the SEC, and the FED that put unbelievable restrictions and
Speaker 1: transparency on on the regulatory framework and what they could
Speaker 1: do and what they couldn't do, So they wanted to
Speaker 1: be much safer. Residential was easier, and that you had
Speaker 1: Fannie and Freddie and the f h A. You had
Speaker 1: quasi governmental entities that could acquire these securities and create liquidity.
Speaker 1: But that didn't exist on the commercial side. So the
Speaker 1: shadow banking industry, which is the framework of what we
Speaker 1: call non bank banks, the the loan market. Remember this
Speaker 1: is mostly for small and medium sized enterprises. So it's
Speaker 1: it's for the the fast food franchise, it's for the
Speaker 1: car wash, it's for the little office building. It's for
Speaker 1: a retail operation who don't have who don't have access
Speaker 1: to large commercial loans. The gigantic office can a subject
Speaker 1: for securitization, but also direct investment on the private side
Speaker 1: for life companies, mutual funds, pension funds, etcetera. So part
Speaker 1: of what we're dealing here, if you if you took
Speaker 1: four quadrants of real estate, we have a public market.
Speaker 1: So the public market are reads on the equity side
Speaker 1: and securitizations on the death side, and we have a
Speaker 1: private market. Is you own your house, you own a building,
Speaker 1: and you get a loan from a life company, and
Speaker 1: on the private side, none of those are tradeable except
Speaker 1: a private pre treating. On the securitization side, everything is tradeable,
Speaker 1: and you vote with your feet every hour. So if
Speaker 1: you own share as any you can trade it any
Speaker 1: day of the week. If you own securitization bonds, you
Speaker 1: can trade those every day of the week. That's the
Speaker 1: good news and the bad news. So what we've come
Speaker 1: into now is in going back to our oil and
Speaker 1: vinegar example, the the commercial mortgage rates and the non
Speaker 1: bank banks originate and bundle all these loans. They package
Speaker 1: them into securitizations with levels of credit enhancement from triple
Speaker 1: A to triple B minus as investment grade. They sell
Speaker 1: those bonds through broker dealers that end up all over
Speaker 1: the world right end of the life companies, endowments, hedge funds,
Speaker 1: corporate treasuries and and mutual funds and et s. And
Speaker 1: then the the originator, let's say the commercial mortgage read
Speaker 1: at the time, in order to keep the the liquidity moving,
Speaker 1: the availability of going to the marketplace and create more loans,
Speaker 1: goes to their primary bank and takes the equity portion
Speaker 1: of what they have in the securities underneath it, and
Speaker 1: they enter into what they call repurchase agreement, and the
Speaker 1: repurchase agreement basically pledges all of those securities that the
Speaker 1: budler has and says we're going to lend you against
Speaker 1: that base x per cent of what they call that
Speaker 1: that that borrowing based basically, and will value those securities
Speaker 1: on a daily base. The terminology of mark to market
Speaker 1: is that they'll take those securities, are those loans, those
Speaker 1: and sometimes their whole loans, and the mark them to
Speaker 1: market on a daily basis and lend to that originator
Speaker 1: a percentage of that I wanted I wanna get into
Speaker 1: a bit on the sort of mark to market question,
Speaker 1: but before we go any further, I'd just like to
Speaker 1: real quickly for listeners who don't know, maybe they only
Speaker 1: know you from having watched your speech at the Republican
Speaker 1: National Convention or a few times on TV. You're as
Speaker 1: you talk about this ecosystem for real estate, where's your
Speaker 1: role so people understand your perspective as the CEO of
Speaker 1: Colony capital where do you play in this entire mix?
Speaker 1: So Colony Capitalists of New York Stock has Change Public
Speaker 1: ret with over fifty billion in assets in a series
Speaker 1: of silos where an owner of legacy businesses and the
Speaker 1: usual food groups, hospitality, healthcare, industrial, um. We also are
Speaker 1: the largest shareholder and a commercial real estate read a
Speaker 1: lender called c l n C. And in the last
Speaker 1: two years we've switched to a digital owners and providers
Speaker 1: of solutions and funding to the digital world, so radio
Speaker 1: cell towers, micro cells, fiber networks, data centers, and smart logistics.
Speaker 1: So we have nineteen around the world. We're we're globally balanced,
Speaker 1: and we've been turning our asset focus from legacy assets.
Speaker 1: Over the last two or three years, we've been selling
Speaker 1: substantial amounts of our legacy assets because prices have been
Speaker 1: quite dear and in our opinion, so we've sold about
Speaker 1: twelve billion dollars of legacy assets and we've invested that
Speaker 1: in the digital framework. We have sixteen silo digital companies
Speaker 1: and about of our balance sheet is is digital. So
Speaker 1: the framework of of looking at this, and my personal
Speaker 1: point of view is the the world of real estate,
Speaker 1: by the way, which which just to give you a
Speaker 1: broad view. If you took in America, if you took
Speaker 1: real estate ownership, real estate services, and all of the
Speaker 1: affiliates around it. It's about of the GDP of America.
Speaker 1: It's huge, and the underpinning of that are owners of
Speaker 1: real estate, suppliers of capital and all the businesses that
Speaker 1: function within them. But it all functions in two markets,
Speaker 1: the Main Street market and the Wall Street market, so
Speaker 1: colonies perspective, as and an owner of of bricks and
Speaker 1: a sponsor of clicks is that is to keep that
Speaker 1: ecosystem moving as an owner and a a receiver of
Speaker 1: income and a provider of both debt and equity, two
Speaker 1: small and middle size businesses and a solution provider to
Speaker 1: the the big digital logos. So in selling our own book,
Speaker 1: so to speak, the the the point of view here
Speaker 1: is I think that the universe of people like us
Speaker 1: have a front row seat to the interconnections on a
Speaker 1: global basis, and how quickly it can go south. And
Speaker 1: it goes south. It's not necessarily good for anybody's business.
Speaker 1: It's not it's not good for our business. But we
Speaker 1: have four or five billion dollars of liquidity, and you
Speaker 1: will survive. The people who don't have the liquidity and
Speaker 1: can survive are the smaller and middle sized businesses. Regardless
Speaker 1: of how good the SBA loans are and how could
Speaker 1: the unemployment benefits maybe, So that's that's really our cancer.
Speaker 1: So can we talk a little bit more about how
Speaker 1: it's going south. You were just discussing REPO funding for
Speaker 1: commercial mortgage backed securities and the mark to market idea.
Speaker 1: What are you actually seeing when it comes to market
Speaker 1: market pricing at the moment. What's happening in that market? Yeah,
Speaker 1: I mean that's then that's a great question, Tracy. So
Speaker 1: what's happening is there is no market. So the market
Speaker 1: market works when you have a smooth and functioning ordinary market.
Speaker 1: At a time like this, there are just no bids
Speaker 1: for those securities, so spreads widened. A bank trading desk,
Speaker 1: So there's an individual based in Delaware, let's say, for
Speaker 1: a major bank, who's valuing these multibillion dollar businesses on
Speaker 1: a daily basis and has a protocol, has a manual
Speaker 1: saying this is this is what you do on a
Speaker 1: daily basis, and if there's an impairment, or if there's
Speaker 1: a threatened improment, or if there's a cessation and revenue anywhere,
Speaker 1: then you you value this bond this way. And they
Speaker 1: go to a broker dealer and they ask for a price. Well,
Speaker 1: the broker dealers don't have any money either, because it's
Speaker 1: completely stopped, right, the system has stopped, so there's no bid.
Speaker 1: So if they happen to market. Let's just take hypothetically
Speaker 1: that you had a a double A bond in which
Speaker 1: the day before there was an embulent market and now
Speaker 1: it's not that there's a market at a spread of
Speaker 1: thirty basis points or fifty basis points where there's a
Speaker 1: temporary cessation of bids because there is in the marketplace
Speaker 1: just saying there is no bid, and the valuation of
Speaker 1: that bond. Everybody believes that when business comes back, not
Speaker 1: necessarily to normal, but when revenues return, whatever that is,
Speaker 1: whether it's days, that bond will come back to parody.
Speaker 1: But that temporary mis mark of that bond causes the
Speaker 1: bank to take those securities, and when they when they
Speaker 1: take those securities, or you have to come up with
Speaker 1: cash to rebalance their loan against what they thought the
Speaker 1: value was. Well, of course the originator can't come up
Speaker 1: with the cash either, because it's a falling knife. So
Speaker 1: everybody's trying to catch a falling knife. And in two
Speaker 1: thousand seven it took a couple of years to clear
Speaker 1: those falling knives because it was a question of credit
Speaker 1: and value. Today, the reason that you hear so much
Speaker 1: dismay in the financial marketplace of saying, don't use the
Speaker 1: market market just forbear for bear for sixty days. Let
Speaker 1: this pass and you won't have these unnecessary whiteouts which
Speaker 1: are starting at the top of that of that intermediary
Speaker 1: causes severe indigestion at the banks. Everybody says, what great
Speaker 1: shapes the banks are in If this continues, the banks
Speaker 1: may not be in that great shape because they're swallowing
Speaker 1: all of these unmarketable pieces of debt. And most importantly,
Speaker 1: the small and middle size borrower who has this is
Speaker 1: on the ropes at a time where they just need
Speaker 1: a break. So what's been happening in the smarket market
Speaker 1: is everybody has been been begging for a regulatory time out.
Speaker 1: Now it's happened on the residential side. So in governmental
Speaker 1: agencies that we're Fannie and Freddie and the f h A,
Speaker 1: let's go to forbearances to the individual and then we'll
Speaker 1: figure out the death stacks on top of that. On
Speaker 1: the rsal side, it hasn't happened because it's it's unbelievably complicated,
Speaker 1: so that the cares empowered the Secretary of Treasury, Steve Manuchen,
Speaker 1: who's sensational with four fifty billion that he can lever
Speaker 1: tend to one at the FED window. And part of
Speaker 1: the discussion is what what can the FED by along
Speaker 1: the securities railroad that will help so TALF. One of
Speaker 1: these acronisms from two thousand seven, which is actually in existence,
Speaker 1: is the ability of the Treasury with their funds lever
Speaker 1: tend to one to buy, advance or lend against these
Speaker 1: securities so that it will create a market. It'll create
Speaker 1: an artificial market with some haircut. But since the FED
Speaker 1: has a thirty year perspective, it's not like a bank
Speaker 1: who's saying, I'm going to bow you this to today's
Speaker 1: value rather than you know, what they call a mark
Speaker 1: to model rather than a marked to mark to market.
Speaker 1: So it's complicated. But if you just looked at it
Speaker 1: as plumbing, the pipeline is fine. There's a clog in
Speaker 1: the system, the pipeline isn't broken. And if you clear
Speaker 1: that clog for five or six inches five or six inches,
Speaker 1: meaning maybe that's two or three or four months on
Speaker 1: the other end that the pipeline will continue to flow.
Speaker 1: If you don't, the whole system could crack. You know,
Speaker 1: the US real estate market is sixteen trillion, and if
Speaker 1: you take all the securitizations, the main street in the
Speaker 1: Wall Street pieces, maybe it's twelve trillion. But it's the
Speaker 1: window to a derivatives market. Right. All these structured products
Speaker 1: rely on each other. So I think what people are
Speaker 1: missing is the act that from the little person who
Speaker 1: has a fast food restaurant to can't pay to the
Speaker 1: most sophisticated Korean life company who's been buying structured financial instruments.
Speaker 1: This could be a fiasco if you don't get liquidity
Speaker 1: into the system. So I think everyone agrees that this crisis,
Speaker 1: this recession, whatever we're calling it, is unlike anything we've
Speaker 1: seen before, because, as you put it, the complete cessation
Speaker 1: of revenue, which is uh partly part of the public
Speaker 1: health crisis. We need everyone to stop doing things for
Speaker 1: a period of time. So we agree on this. There
Speaker 1: is a cynical view would be that, well, look two
Speaker 1: thousand and eight, two thousand nine, there were also calls
Speaker 1: at that time for the suspension of mark to market
Speaker 1: accounting for similar reasons when are what is a good
Speaker 1: time to take a mark? It's always going to be difficult.
Speaker 1: You talked about the inherent liquidity mismatch between some of
Speaker 1: the vehicles that people own versus the liquidity of the
Speaker 1: underlying products. What do you say the cynics that would say,
Speaker 1: you're always going to say that, You're always going to
Speaker 1: say this isn't the right time to take a mark,
Speaker 1: because it will come back at simple. Yeah, it's and angel,
Speaker 1: look it's it's the right question. But here's the here's
Speaker 1: this simple answer to me is in essence, what's happened.
Speaker 1: It's an eminent domain Act. So we can talk about
Speaker 1: how terrible what we're dealing with on a virus and
Speaker 1: in a disease and a crisis that is, and how
Speaker 1: you respond to it. But the bottom line for these
Speaker 1: people is the government said don't go to work. They
Speaker 1: didn't say if you go to work, you're gonna get sick.
Speaker 1: They didn't say if you go if you go to work,
Speaker 1: you're going to die. They said stop. So when you
Speaker 1: do that, that's fine, And the consequences of social consequence
Speaker 1: for all of us right in which we're all saying
Speaker 1: for the greater good. We are going to tech a
Speaker 1: percentage of deaths by stopping the economy. Now that is
Speaker 1: a debate in itself. The way to do it is
Speaker 1: to say, great, the consequence of that is we're not
Speaker 1: going to unnecessarily have another set of unintended consequences as
Speaker 1: a result of that, including deaths. By the way, by
Speaker 1: having a financial system that we're saying, the only thing
Speaker 1: that doesn't stop is the consequences of our own actions,
Speaker 1: the government actions and stopping commerce. It makes no sense.
Speaker 1: So we all have to pay that price. The fed right,
Speaker 1: our kids are going to pay the price. And by
Speaker 1: the way, the stimulus bill and Congress did a great job.
Speaker 1: The administration has done a great job. But it's going
Speaker 1: to be the first and several. Right, we're gonna this
Speaker 1: was three, We're gonna have a four. We're gonna have
Speaker 1: a five for sure. So the point and the point
Speaker 1: is if if you are going to pay for it
Speaker 1: anyhow So, the aftermath of two thousand and eight, when
Speaker 1: they went back and they looked at tup tarp over
Speaker 1: a much longer period of time, the mark to market
Speaker 1: then was as a result of the vagaries of the industry.
Speaker 1: So supply demand was absolutely out of sight, and the
Speaker 1: lack of regulatory confines on the investment banking system was
Speaker 1: part of the problem. So in a market to market
Speaker 1: which is adjusting as a result of the vagaries of
Speaker 1: the capitalistic system, it makes sense when we have a
Speaker 1: governor invention that says stop, it makes no sense. So,
Speaker 1: just on this question of moral hazard, which is the
Speaker 1: theme that we're really touching on right now, we have
Speaker 1: seen the Federal Reserve provide basically unlimited term borrowing for
Speaker 1: the banks. But part of the issue here seems to
Speaker 1: be that that liquidity isn't necessarily making its way into
Speaker 1: the non bank financial sy them. Is that part of
Speaker 1: the problem and how would you go about fixing it? Yeah,
Speaker 1: that's absolutely that is part of the problem. So the
Speaker 1: banks have zero borrowing costs and and they have all
Speaker 1: the liquidity they defend has opened up to them in
Speaker 1: every aspect. The banks, in turn, looking down this pipeline
Speaker 1: um to everybody, have not figured out how to comply
Speaker 1: with the regulatory framework from a series of regulators. If
Speaker 1: you if you look at the chart of a depository bank,
Speaker 1: there's probably ten regulating agencies. So the protocol of going
Speaker 1: from there two forbearance, right, which is the magic world.
Speaker 1: Every everybody wants to forbearance. So a tenant who's living
Speaker 1: in an apartment wants a forbearance for ninety days, hundred
Speaker 1: and twenty days from their landlord. The landlord then in
Speaker 1: turn wants a forbearance from their lender that intermediate packager.
Speaker 1: The intermediate intermediate packager then wants a forbearance from its
Speaker 1: prime bank. And the problem is the regulatory requirements don't
Speaker 1: exist in in a czar right, there's not one person.
Speaker 1: And by the way it's happened, so there's all sorts
Speaker 1: of inter agency memos going around saying lighten up on foreclosures,
Speaker 1: go slowly on on the market markets, encouraging people to
Speaker 1: have this dialogue. But the regulatory framework within the banking
Speaker 1: industry is so complicated that they haven't been able to
Speaker 1: get the wiring correctly yet. And it's and it's a
Speaker 1: fast moving train, so I think that they'll get there.
Speaker 1: But since there's no plenary one stop shopping on top
Speaker 1: of all of them, you have to get all these
Speaker 1: agencies and accounting rules to agree. So you have fas
Speaker 1: vy of the sec have the fd I C of
Speaker 1: O c C. You have the FED, you have the Treasury,
Speaker 1: and you have state superintendence, all with a different, very
Speaker 1: complicated set of regulatory requirements which don't move instantly. So
Speaker 1: I think that they'll get there, and I think the
Speaker 1: banks are are very aware that they need to figure
Speaker 1: out a way to have a pass through of the
Speaker 1: benefit and the largest that they're getting from the Fed
Speaker 1: all the way through to the little borrow. But it
Speaker 1: takes time and it's right just to be clear, is
Speaker 1: your view that I mean, you mentioned we're gonna need
Speaker 1: around four of the stimulus and around five and so forth.
Speaker 1: But at least under current law, do you believe that
Speaker 1: a sort of system wide pause button is at least
Speaker 1: legally capable, even if there's extraordinary complexity and difficulty of
Speaker 1: coordinating among all the different regulators. Look from from the
Speaker 1: cheap seats, just from I'm I'm a user of capital
Speaker 1: and the beneficiary of the capital system, and I've looked
Speaker 1: at other other countries around the world and how they've responded,
Speaker 1: and none of them are great. But I think what
Speaker 1: history has shown is that if you have an indication
Speaker 1: in a statement saying that you're covered, whatever it is,
Speaker 1: So if you're a tenant and you're paying rent and
Speaker 1: you can't pay rent, don't worry. You don't have to
Speaker 1: pay it. If you're paying interest and you can't pay interest,
Speaker 1: don't pay it. If you're receiving a check for a
Speaker 1: thousand dollars a month and have been cut off, you'll
Speaker 1: get eight hundred that that bill, whatever that bill is,
Speaker 1: is cheaper. And what's we're going to end up paying.
Speaker 1: So if you look at the GDP of Americans said
Speaker 1: it's four point nine trillion a quarter something like that,
Speaker 1: and said, to keep this moving, and we don't know
Speaker 1: how long that it goes, but to keep it moving
Speaker 1: for everybody, and and and price is not as complicated
Speaker 1: as how you do it right, because even with the
Speaker 1: SBA loans and looking and saying, how do you get
Speaker 1: those two people quick enough for the unemployment checks? How
Speaker 1: do you do it fast enough? But I think at
Speaker 1: the end of the day, we'll look back and say,
Speaker 1: if you would have plugged this hole for everybody and
Speaker 1: said you're going to do it for sixty year, ninety days.
Speaker 1: And then the crisis science, which I'm not in a
Speaker 1: position even way on these doctors and the scientists are
Speaker 1: doing an amazing job. But whatever the the comeback drill is,
Speaker 1: we need one, right, we have we we have to
Speaker 1: we have to have a comeback story. And the comeback
Speaker 1: story is is contain and in the process of those
Speaker 1: who are healthier, those have been affected in certain areas
Speaker 1: coming back. How long does that take to come You
Speaker 1: can't stop the GDP of America for seven months. It's impossible,
Speaker 1: so to me, the other, the other crisis is the
Speaker 1: Fed commandment saying we can do it all and we'll
Speaker 1: do it all that they're trying to do it in steps,
Speaker 1: and I understand the legislative The legislative dilemma is everybody
Speaker 1: wants to make sure that whatever whatever solution is applied,
Speaker 1: is applied equally to all that the afternat that would
Speaker 1: happen in two thousand and seven, or that perception of
Speaker 1: chronic capitalism, or that it's only the big financial players
Speaker 1: who benefit from this, and the fact cat executives and
Speaker 1: investment banks are going to get gigantic bonuses and the
Speaker 1: big corporations that are that are bailed out are going
Speaker 1: to get more stock grants. Nobody wants that. So it's
Speaker 1: it's complex, But I think it's at the end, it's
Speaker 1: going to cost us the same either way. And I
Speaker 1: I'm just a believer of the FED saying will open
Speaker 1: up the window and buy it's wide a variety of
Speaker 1: securities as we can, because if we bolster, if we
Speaker 1: bolster that, just in our little world of real estate,
Speaker 1: if you bolster at the bottom, it all rises to
Speaker 1: the top. In the investment grade, the big investment grade
Speaker 1: companies don't need help. They can still access the market.
Speaker 1: It's the other companies. So if you said, great, here's
Speaker 1: what we're doing, and you have to keep a few
Speaker 1: people employed at of their salary, and you have to
Speaker 1: continue with benefits, and you have to continue with X,
Speaker 1: I think you start to solve the problem. It's just
Speaker 1: it's it's massively frightening to all of us who are
Speaker 1: sitting on the precipice of this financial tsunami. And and
Speaker 1: we're going to see more right, it's April twod today.
Speaker 1: Payments between April two and April eleven. They're going to
Speaker 1: tell us a lot who's going to pay and who's
Speaker 1: not going to pay, And when they don't pay, what happens?
Speaker 1: Can you imagine something, I mean, a governor or a
Speaker 1: mayor of any city is not going to honor an
Speaker 1: eviction of the tenant, So what is the landlord? Nobody pays,
Speaker 1: nobody's going to get thrown out, right, it's the same
Speaker 1: the resolution that the bankruptcy courts can't handle the amount
Speaker 1: of bankruptcy is they're going to have to have a
Speaker 1: cessation on the process. So it's easier to keep the
Speaker 1: plumbing moving and employ the unintended social consequences of what
Speaker 1: I'm about. If people can't function, Um, I think that's
Speaker 1: actually a good place to leave it. Good will you
Speaker 1: guys sent me the solution. Yeah, what we figured out.
Speaker 1: We'll shoot you an email. Yeah, we'll try. Thank you
Speaker 1: so much, Tom. A really great conversation and we appreciate
Speaker 1: you coming on. No, you guys are great and it's
Speaker 1: great catching up with both of you. Stay safe. Thanks
Speaker 1: you too, Tom. Cheers you too, So, Joe. I found
Speaker 1: that conversation really fascinating. Tom is probably the perfect person
Speaker 1: to really talk about the intricacies of the mortgage market
Speaker 1: at the moment, and I think what comes through the
Speaker 1: most is that it's not as simple as everyone just saying, oh,
Speaker 1: we're not going to pay the rent. For two or
Speaker 1: three months. There is this sort of complicated network or
Speaker 1: ecosystem that is attached to the cash flows from that rent. Well. Absolutely,
Speaker 1: And of course we got into this a little bit
Speaker 1: in our recent episode with Realton Postar and Perry Maryland
Speaker 1: just about this sort of overall you know, the complex
Speaker 1: web and why just if you for if you offer
Speaker 1: forbearance for one entity, then that's another entity on the hook.
Speaker 1: And I think what interested me is not just the
Speaker 1: idea of like a systemic wide pause and whether it's
Speaker 1: theoretically possible, but the as he described, the web of
Speaker 1: different regulators around the world, or at least around the
Speaker 1: country at a minimum, that would have to agree on
Speaker 1: that there's not even there's no entity. Maybe the FED
Speaker 1: could come closest, but there's no one even in a
Speaker 1: position to unilaterally declare that um even if that were
Speaker 1: seen as a best way forward at this point, right,
Speaker 1: And I think his point about just sort of keeping
Speaker 1: things going in the interim might be the cheapest and
Speaker 1: easiest solution in the long run sort of makes a
Speaker 1: lot of sense at this point, especially when you're talking
Speaker 1: about something as heavily legal as US real estate. He
Speaker 1: mentioned the bankruptcy system. Just then, Uh, we know that
Speaker 1: a lot of the mortgage servicers are already full up
Speaker 1: because a lot of people have been refinancing their mortgages
Speaker 1: at ultra low rates. The idea that now we're going
Speaker 1: to be having a bunch of loan works or bankruptcy processes,
Speaker 1: you could see that easily easily overwhelming the system and
Speaker 1: really making life harder for a lot of people. Yeah. Absolutely,
Speaker 1: And of course, you know, a sort of a large
Speaker 1: firm that has a lot of a lot of lawyers
Speaker 1: and accountants can navigate this. You know, there's also a
Speaker 1: lot of sole proprietor commercial real estate landlords out there.
Speaker 1: There's just people who own a home and might rent
Speaker 1: it out to someone else who don't have that capacity.
Speaker 1: But they also aren't going to have the capacity to
Speaker 1: do an eviction. They probably wouldn't even want to go
Speaker 1: into the person's house or into the tenant's house. It
Speaker 1: just you know, in a health crisis to do that.
Speaker 1: So without some sort of systemic wide ability to again
Speaker 1: hit this pause button, the other avenues that we typically
Speaker 1: deal with, or the other avenues that we typically deal
Speaker 1: with for bankruptcies will clearly just get overwhelmed and will
Speaker 1: pay for it one way or another. I think in
Speaker 1: some everything in the mortgage market right now is just
Speaker 1: really really messy. That's my my overriding conclusion from this conversation.
Speaker 1: And I know you know some of the things we've
Speaker 1: recently talked about. If that was interesting, Tom dropping a
Speaker 1: reference to um what is the Korean structured notes right
Speaker 1: or the Taiwanese like buying the so previous odd lots
Speaker 1: that we now have to revisit very soon because you
Speaker 1: said at the beginning, we've caught all the We've hit
Speaker 1: all the big themes, although we still haven't done the
Speaker 1: e m angle, which I think is really big. But
Speaker 1: we've hit all most of the big themes, and now
Speaker 1: you need to get into the micro themes because there's
Speaker 1: just so many aspects of this mess. To this guy,
Speaker 1: all right, we've done macro. The micro is coming up
Speaker 1: very soon, but let's leave it here for for this
Speaker 1: particular episode. I'm Tracy Alloway. You can follow me on
Speaker 1: Twitter at Tracy Alloway, and I'm Joe wi isn't All.
Speaker 1: You can follow me on Twitter at the Stalwart, and
Speaker 1: you should follow our guest on Twitter, Tom Barrett he's
Speaker 1: at Tom Barrett Jr j R. And you should follow
Speaker 1: our producer on Twitter, Laura Carlson. She's at Laura M.
Speaker 1: Carlson followed the Bloomberg Head of Podcasts on Twitter, Francesca
Speaker 1: Leaving at Francesca Today, as well as all of the
Speaker 1: Bloomberg podcasts under the handle at podcasts. Thanks for listening.