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Banking stupidity, then and now

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Eighteen months ago, banks were throwing money around with very little discretion. Now we find that they made a lot of bad loans, took extreme risk and jeopardized the global economy and the well being of hundreds of millions of people.

All this was supported by a simple minded president, corrupt Congress and an over-confident, short sighted investment community maneuvering in and around a sleeping Securities and Exchange Commission.

Having invested in a broad range of real estate assets (as well as stocks), I am feeling the pain like most everyone else. Reduced values, tighter liquidity, and uncertainty rule the market place.

What has me steamed currently is that I think there is more capital in the marketplace than courage! The lack of courage along with a shortage of leadership and wisdom continues to exacerbate a bad situation. I am probably better off than many people having been able to close two loans in the past month. It was not easy. However, after dealing with many financial institutions that are now doing a better job in the review process, I see that they have swung too far to the conservative side.

Consider this: only a short while ago lenders were happy to loan money for construction when the cost of labor, materials and land were high. We were allowed to buy high, and now in some cases forced to sell low -- and the banking industry has been crushed because of it. Now when the prices of everything have collapsed, it is the perfect time to build, but they are afraid to loan any money.

Anyone starting a project today will find that their project costs have come down drastically. As a result, projects started now will come on market in 24 to 30 months in a different economy -- a better economy. Unfortunately, lenders are not allowed to look ahead, or at least have not honed that skill. To some degree, they loaned money when they should not have, and will not when they should.

Here is an interesting bit of trivia. I have a loan commitment letter from Washington Mutual (NYSE: WM) on the same day the bank collapsed into the hands of JPMorgan Chase (NYSE: JPM). The loan closed without any difficulty and they are still lending.

Currently, I am endeavoring to develop apartment buildings in Southern California. Nothing huge, mostly infill type projects. I have zero fear that I will have any trouble renting them since so few were developed in favor of condominiums in the past decade. It will just take more patience educating the banks.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.

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Last updated: November 10, 2009: 07:34 AM

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