Feb082017
The real estate negotiation technique Trump uses as President
Donald Trump uses executive orders like land acquisition professionals use letters of intent.
When I first saw the headlines touting Donald Trump’s repeal of Dodd-Frank by executive order, I literally laughed out loud. I wondered, who does he think he is, Emperor Trump? Does he really think he can change laws by executive order? Does he fail to understand the separation of powers in the US Constitution?
The US Constitution, the document Trump swore to uphold, bestows all lawmaking power on the US Congress. The chief executive, the President, can either sign a Congressional bill, or he can veto it, but the President has no power to make law — not that Trump’s supporters seem to understand that.
The more I thought about what Trump actually did, his actions started to make sense. His presidential orders are the opening round of negotiations with Congress, the Courts, and the Bureaucracy concerning the changes he would like to see instituted in Washington.
The letter of intent to purchase
The first step in any real estate negotiation is to issue a letter of intent (LOI) to purchase. A LOI basically says that if the subject property meets certain conditions that a buyer will pay a stated amount for the property under various terms. If the seller agrees to a letter of intent, the buyer begins due diligence to research the property’s condition, and after obtaining the results of the research, the two parties negotiate over remediation costs to arrive at a final purchase price and terms.
Very few properties actually transact with the price and terms in the letter of intent. The letter merely serves as the starting point for a negotiation. It’s similar to the initial offer in a residential real estate deal except that the letter of intent is more malleable, and the ensuing negotiation is far more complex.
Trump’s experience
Everyone knew Donald Trump had no government experience when he was elected president. What was known is that he is an autocratic leader of a private sector real estate business who is fond of saying “you’re fired.” An autocratic management style works for an entrepreneur operating his own business. He is accustomed to the people around him doing what he wants when he wants it, or he will fire them. When he issues edicts in his business, they are followed without question. Unfortunately, that isn’t how government works.
Trump’s background in real estate negotiation and his experience running a private sector real estate company explains much of what we’ve seen in the first few weeks of his presidency. When Trump issues a presidential order, I don’t think he really expects it to be the final word on the matter. Instead, he recognizes the presidential order is his letter of intent to pass legislation.
Whereas previous presidents articulated an agenda and meet with Congressional leaders to prompt them to act on the President’s agenda, Trump follows a different path, issuing presidential orders to shake things up and force the courts and Congress to act. Remember, Trump was sent to Washington to shake things up.
The brilliance of this unconventional approach is its directness and simplicity. His working-class supporters neither care about nor understand the complexities and nuances of Washington politics. What they see is the president they elected doing exactly what they elected him to do: shake up Washington. Even if Trump fails, like his ban on Muslim travel will likely fail, he still looks like a hero because he tried. The presidential order (later to be overturned) is a new form of symbolic politics, and his supporters will eat it up.
The directness of this measure also makes his desires and goals abundantly clear. He doesn’t need to worry whether or not Congress will misinterpret or distort his intent because he laid it out very clearly in his presidential order.
Whether this style and strategy will be successful remains to be seen, but these presidential orders are not the ravings of a delusional fool who believes he’s was elected Emperor, despite what many on the left say. This is a method and a strategy known to work in complex real estate deals, and Trump is molding the presidency to take advantage of his strengths in areas he understands very well.
Lawyers say Trump executive order does not overhaul Dodd-Frank
More like a call for analysis and review
Brena Swanson, February 7, 2017
President Donald Trump’s executive order to roll back the Dodd-Frank Wall Street Reform Act doesn’t do much by itself. Instead, the move mostly points to an already existing act championed by House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, to replace Dodd-Frank, a blog post from Mayer Brown attorneys Laurence Platt and Joy Tsai stated.
The blog stated that the order… sets out the core principles for regulating the financial system.
This is a classic letter of intent strategy just like what Trump would do to begin a real estate negotiation.
Despite calls that his administration would be “doing a big number on Dodd-Frank,” the blog stated, “His recent executive order on core principles appears to be more of a tempered call for analysis and review rather than an outright demolition of existing financial regulations… .”
What the order does show, the blog explained, is where the administration’s policy is likely headed.
The reason I laughed out loud when I first heard of this presidential order is that it was portrayed in the media as being a rewrite of existing law, something the president has no power to do. When I read the comments on a posting over at HousingWire, it was clear than many of Trump’s supporters are completely clueless and really believed Trump’s presidential order meant something — and that’s when I fully realized the brilliance of what Trump had done.
The blog stated that the core principles identified in the executive order mirror key principles in the “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs” Act (CHOICE Act) by Hensarling. “A sign that the Executive and Legislative branches intend to collaborate to replace at least some Dodd-Frank provisions with CHOICE,” the blog stated.
And Hensarling also pointed out the similarities, saying that much of the order “mirrors” the Financial CHOICE Act, the Republican-led effort to repeal and replace Dodd-Frank.
“I’m very pleased that President Trump signed this executive action, which closely mirrors provisions that are found in the Financial CHOICE Act to end Wall Street bailouts, end ‘too big to fail,’ and end top-down regulations that make it harder for our economy to grow and for hardworking Americans to achieve financial independence,” Hensarling said.
After looking at the order, the blog stated that in itself it is not a significant overhaul of Dodd-Frank.
The core principles in the executive order should simply be viewed as a policy placeholder for the re-thinking of Dodd-Frank, in terms of both potential legislative and regulatory changes, the blog stated.
In other words, it’s the beginning of the negotiation.
I articulated the reasons I believe Dodd-Frank overhaul is a battle Trump would lose. In short, if he goes too far and actually tries to repeal the law, Senate Democrats will filibuster, and the Republicans will get nowhere. However, even the Democrats recognize Dodd-Frank isn’t perfect, and some provisions of the law may be negotiable. Any progress Republicans make on this issue can be spun as a victory, particularly in our age of alternate facts.
Any skilled negotiator realizes that they never get everything they want out of the process. Trump doesn’t need to get everything in his presidential order for the negotiation to be a success.
Success to a dealmaker is a deal. Whether or not the terms are favorable is a secondary measure of success. When viewed from that perspective, I would be very surprised if Trump doesn’t succeed on many of these initiatives he set in motion with his controversial presidential orders.
Now if we could just get some clear thinking like this in Washington.
Theresa May to offer more security for renters
White paper will promise greater rights for tenants as Tories accept the system is ‘broken’
A major shift in Tory housing policy in favour of people who rent will be announced by ministers this week as Theresa May’s government admits that home ownership is now out of reach for millions of families.
In a departure from her predecessor David Cameron, who focused on advancing Margaret Thatcher’s ambition for a “home-owning democracy”, a white paper will aim to deliver more affordable and secure rental deals, and threaten tougher action against rogue landlords, for the millions of families unable to buy because of sky-high property prices. Ministers will say they want to change planning and other rules to ensure developers provide a proportion of new homes for “affordable rent” instead of just insisting that they provide a quota of “affordable homes for sale”.
They will also announce incentives to encourage landlords to offer “family-friendly” guaranteed three-year tenancies, new action to ban unscrupulous landlords who offer sub-standard properties, and a further consultation on banning many of the fees that are charged by letting agents.
A senior Whitehall source said: “We want to help renters get more choice, a better deal and more secure tenancies.” They added that the government did not want to scare people off from renting out homes, but offer incentives to encourage best practice and isolate the worst landlords. By emphasising the rights of renters, as well as trying to boost house building, the white paper will mark a turning point for a party that since the 1980s, and the first council house sales, has promoted home ownership as a badge of success, while neglecting the interests of renters.
US political, economic risks mounting against Trump’s agenda, Goldman Sachs says
The policy halo effect that provided ballast to the stock market and fueled investor optimism is already being dimmed by political realities, according to Goldman Sachs, which may have negative implications for economic growth.
In a note to clients on Friday, the investment bank noted President Donald Trump’s agenda was already running into bipartisan political resistance, with doubts growing about potential tax reform and a repeal of the Affordable Care Act, among other marquee Trump administration initiatives.
Just two weeks into his tenure, “risks are less positively tilted than they appeared shortly after the election ,” Goldman wrote. Growing resistance to Trump’s executive orders on immigration and financial reform has galvanized opposition while dividing members of the president’s own Republican Party.
It has also curbed the enthusiasm of investors, who sent stocks on a roller-coaster ride this week as they struggled to reconcile the new restrictions on immigration with Trump’s professed pro-business bent.
“While bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address,” the bank added.
The balance of risks “are less positively tilted than they appeared shortly after the election,” Goldman said, which may blunt the force of future growth.
Amid reports that top GOP members are reportedly becoming nervous about the impact of a full-fleged repeal of health care, that political pushback “does not bode well for reaching a quick agreement on tax reform or infrastructure funding, and reinforces our view that a fiscal boost, if it happens, is mostly a 2018 story.”
Indeed, Utah Republican Senator Orrin Hatch said that he was “not very enthused” by the prospect of broad tax reform, The Associated Press quoted Hatch as saying. A politically thorny proposal for a “border adjustment tax” —seen by some as a linchpin to force Mexico to foot the bill of building a border wall —is also dividing members of the GOP.
“Some of the recent administrative actions by the Trump Administration serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economy,” according to Goldman, saying that the president’s agenda “present risks in both directions.”
Unfortunately, these “negotiations” with courts undermine the rule of law in America.
Trump Slams ‘So-Called’ Judge on Travel as State Lifts Visa Ban
President Donald Trump slammed the federal judge who temporarily ended U.S. immigration restrictions made in his executive order a week ago, vowing that the decision in a case involving Washington and Minnesota will be reversed.
The State Department will allow individuals with valid visas to travel to the U.S. and the Department of Homeland Security has reverted to procedures in place before the Jan. 27 White House order, after U.S. District Judge James Robart’s ruling lifted the ban on all refugees and on visa holders from seven predominantly Muslim countries. Also, the State Department has reversed the provisional revocation of about 60,000 visas made under Trump’s executive order.
“The opinion of this so-called judge, which essentially takes law-enforcement away from our country, is ridiculous and will be overturned!” Trump said in an early-Saturday tweet to his 23.6 million followers.
Donald J. Trump ✔ @realDonaldTrump
The opinion of this so-called judge, which essentially takes law-enforcement away from our country, is ridiculous and will be overturned!
5:12 AM – 4 Feb 2017
The comment drew a sharp response from Chuck Schumer, the Senate’s top Democrat, who said in a statement that Trump “shows a disdain for an independent judiciary that doesn’t always bend to his wishes and a continued lack of respect for the Constitution.”
In his ruling, Robart said the states of Washington and Minnesota, which brought the case, can sue on the grounds that their economies and residents would be harmed by the ban announced a week ago.
‘Big Trouble!’
“When a country is no longer able to say who can, and who cannot , come in & out, especially for reasons of safety & security — big trouble!” Trump tweeted.
The ruling eclipsed a Trump administration win earlier on Friday, when a federal judge in Boston refused to extend a temporary ruling blocking enforcement at that city’s airport of the ban on immigrants from seven countries. Robart, in Seattle, said in his ruling that voiding the president’s order throughout the U.S. was needed for consistency.
This is an instance where prior legislation does back Trump’s authority to regulate who enters the country. Wishing something was un-Constitutional doesn’t make it so. The funny thing is Democrats are siding with the terrorists on this issue, and the next attack will be blamed on their efforts here to weaken our security. To quote Admiral Ackbar: “It’s a trap!”
I saw one of those propaganda posts on Facebook that said Jimmy Carter banned Muslims from Iran during the hostage crisis. I don’t know if it’s true, but if it is, it certainly shows either how far the Democrats have come, or how hypocritical they are on this issue.
http://www.snopes.com/jimmy-carter-banned-iranian-immigrants/
I should have guessed the Facebook meme was fake news.
Another example of Chris Whalen talking his own book.
Why investors could see a $100 billion windfall from Dodd-Frank reform efforts
A recent report from Kroll Bond Ratings Agency Senior Managing Director Christopher Whalen suggested that one area that the Trump administration should focus on in its regulatory reform efforts is the requirement that financial institutions hold capital to prevent the need for a bailout in a financial downturn.
As a result of those requirements, the country’s six largest banks currently hold more than $100 billion in excess capital, according to a new article from the Wall Street Journal.
So, what happens to all that money if the capital requirements are overhauled or eliminated? It could be quite the windfall for investors, as it turns out.
The Wall Street Journal explains:
The six biggest U.S. banks could potentially return more than $100 billion in capital to investors over time through dividends and share buybacks if the Trump administration succeeds in a push to loosen bank regulation.
That caused bank stocks to gain ground Friday, building on sharp increases since the presidential election. Those occurred as expectations among investors of higher interest rates, less regulation and stronger economic growth stoked optimism that banks will be able to return more capital to shareholders. While there is no guarantee the banks will do so when they are able, they have been eager in recent years to return capital as their profits have grown and their balance sheets have become less risky.
The top six U.S. banks have $101.57 billion in capital in excess of what regulators require them to set aside, according to research from RBC Capital Markets. Analysts at Morgan Stanley estimate such capital at around $120 billion across 18 of the largest banks.
It should be noted that thus far there has been no direct indication that either the Trump administration or the Republican majority in Congress intends to pursue a change to the post-crisis capital requirements, but as Whalen and the Wall Street Journal separately note, it’s certainly an option.
And if it happens, investors could win big.
Houses are the least affordable they’ve been in seven years: Here’s why
Rising mortgage rates, bigger jumps in home prices and still-moderate income growth are adding up to a triple threat for the housing market this spring.
Home affordability fell to the lowest level in seven years at the end of 2016, and the ingredients for a reversal are not there anytime soon.
It now takes 22.2 percent of median income to make the monthly principal and interest payment on the median priced home, according to a new report from Black Knight Financial Services, which based the measure on borrowers using a 30-year fixed mortgage. That monthly payment on the median-priced home increased 10 percent in the fourth quarter alone, thanks to a sharp jump in mortgage rates following the presidential election.
During the 2005-2006 housing bubble, it took nearly 36 percent of the median income to afford a home, as home prices and mortgage rates were higher.
But there is a stark difference between those days and today. Back then, most homebuyers were not using 30-year fixed loans. They were using all kinds of “creative” loan products with no money down and extremely low teaser rates. They also used negative amortization loans, which put payments off, adding to the balance of the loan. These loans caused the extreme bubble and the ensuing crash in the financial markets — precisely why many of these loans are illegal today.
“That’s why we always use a 30-year fixed rate for comparison. It lets you know if something in the mortgage market itself (other than rates) is causing a change in the affordability equilibrium,” noted Ben Graboske, executive vice president of Black Knight Data & Analytics. “Mortgage lending led to affordability getting out of whack back in 2006 due to mortgage programs increasing buying power and thus driving up home price when in reality, without those products, the affordability ratio (between home prices, incomes and interest rates) were nowhere near sustainable.”
A decline in sales volume always precedes a crash.
Vancouver Home Sales Plunge 40%, Extending String of Declines
This time last year, Vancouver was one of world’s hottest housing markets as buyers turned up throughout the winter for bidding wars and sales reached an all-time high.
Today, the Real Estate Board of Greater Vancouver reported transactions in Metro Vancouver plunged 40 percent in January over a year earlier as both buyers and sellers hover on the sidelines. That’s the seventh straight month of declines, according to data compiled by Bloomberg. The ratio of sales to listings — used by the industry as a harbinger of prices — is also at a two-year low, according to the board.
This is going to be fascinating to watch.
One of the problems with this data is that there was a huge spike in sales, current sales are pretty much aligned with historic and inventory is very low.
I think you and Irvine Renter may be surprised at what it looks like in 18-24 months.
Nice post Larry. Insightful.
Easy to id the point on this chart when the ‘selling begets selling’ phenomenon kicks-in…
If supply is that low and prices being what they are, that chart tells me that sales volumes are going to tank.
Nice charts above, only time will tell what happens.
The ‘selling begets selling’ didn’t kick in until 2008 when there were 10-11 months of supply according to this chart.
And it was more like a foreclosure wave than “selling begets selling” event.
All this chart tells you is the market won’t be fun for buyers for quite some time.
If you view all of Trump’s policy ideas as the starting point in a negotiation, they all make perfect sense. It’s the disconnect between what prior Presidents have done and what Trump is doing that confuses people. Nobody in recent memory has started with the most extreme positions possible with an eye towards getting what they want out of the final deal the way Trump is attempting. Most Americans don’t understand negotiation tactics and they are used to Presidents working to build consensus around their ideas. In other words, they are used to a “salesman in chief” like Obama, somebody that could talk and sell people with his oratory skills. Trump doesn’t care about selling his policies in the traditional sense, but rather persuasion through wearing his opponents down. He has Democrats back on their heels on so many different fronts that they don’t know where to focus their energies. So instead, their efforts are being fragmented and diluted by trying to oppose him on everything, which means they will probably fail to stop him on most things.
As an example, think of all the resources that were wasted in opposing Betsy DeVos as Education Secretary. It was mostly a symbolic battle because she would have virtually no power to implement any of her ideas, yet the Teachers’ Unions said “jump” and the Democratic Senators had to make a show of opposing her. They could have focused on opposing Trump on immigration, the CFPB, sanctuary cities, or any number of more substantive issues, but they wasted all that political capital on a largely symbolic effort that failed anyway. So those other issues now have a higher chance of becoming reality.
Even with the election over, Trump is still out-politicking the politicians, and they despise him so much that they continually under estimate his capabilities by branding him a doofus. Meanwhile, he’s running circles around them with executive orders and controversial tweets, and then out maneuvering them when they react in the most predictable ways possible.
Not only will the improbable election of Trump be studied for generations, but what is happening right now will also be studied for generations to come, as Trump employs tactics never before used by any President. He is rewriting the book on governing.
Well said Mellow
I don’t think the Democrats are in disarray as much as you think. They are simply powerless to stop anything except debate in the Senate. Their only tool is the filibuster, so the Democrats can’t influence anything that doesn’t require a senate debate. They can spout and spin all they like, but the rubber meets the road in the Senate — which is also where the Democrats will unite to defeat Trump on any significant legislation.