Transparency Needed for Stable Financial System
One of the major problems leading to the financial system meltdown was a lack of transparency, a group of analysts and business executives told REALTORS® during the Real Estate Summit yesterday at the 2010 Midyear Legislative Meetings & Trade Expo in Washington, D.C.
Institutional secrecy, whether intended or not, made it difficult to get good data and understand risk, said Alan Boyce, CEO of Absalon. For instance, he said, the mortgage-backed securities market was “opaque” and “idiosyncratic” prior to the housing meltdown, he said. His company, Absalon, is a joint venture between VP Securities and Soros Fund Management; its purpose is to empower countries to adopt the beneficial attributes of the Danish mortgage system.
Unfortunately, lack of good data is still an issue, the executives said. That may seem surprising in an era of information overload, but the problem is one of quality, not quantity. There’s plenty of research and analysis out there, but timely, accurate information is hard to come by.
Before the downturn, even when information was available, players in the market failed to pay attention, said William Cohen, an author, investigative journalist, and former investment banker. He cited ratings agencies and real estate consumers as major offenders.
“In the real estate market, there’s no question that having more information is better,” Cohen said. “The problem is that so many parts of the system abdicated their responsibilities of old-fashioned due diligence.”
Or as CNBC Senior Analyst Ron Insana put it, “Even if they had the transparency and data, they wouldn’t know what they were looking at. In addition to upgrading the data, we need to upgrade the quality of people looking at the data.”
What’s Government’s Role?
Picking up on a theme from another Summit session earlier, the panel discussed the problems with continued government intervention in real estate. Some panelists said that federal programs designed to boost the market were, in fact, delaying the inevitable. Boyce said the Home Affordable Modification Program (HAMP) doesn’t mitigate foreclosures, just delays them.
John McCrocklin, president of John McCrocklin & Associates Real Estate in Wimberley, Texas, compared the government’s efforts to similar programs implemented after the commercial real estate bust in Texas more than two decades ago. “The market can’t find a natural floor,” he said. “We saw this in Texas during the 1980s. We had to bite the bullet and a lot of people went under, but we recovered.”
Although the panelists generally favored a diminished government role in real estate in the future, they acknowledged that policy makers could not have sat idly by during and immediately after the downturn.
“They had a choice: Go off a cliff or go down a steep hill,” said Tom Deutsch, executive director of the American Securitization Forum, a New York–based advocacy group for participants in the U.S. securitization market. “They chose to go down a steep hill.”
—Brian Summerfield, REALTOR® Magazine
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