My perspective is skewed… Driving home from work yesterday, I heard an advertisement from a bank with a snippet like this… “Sterling Bank - with over $4.2 billion in assets and no subprime investments.”  

My initial reaction?  Man! Why would I want to give my money to an institution that wasn’t smart enough to make any money on the mortgage boom?  Kind of messed up, huh?  I thought banks were supposed to be somewhat risk adverse.

Maybe my perspective is skewed because I work for a global real estate opportunity fund?  I saw a lot of people make a lot of money in the past 5 years by buying up large assets (hotels, office buildings, condos, etc), then refinancing them them multiple times to pull out their capital.   Luckily, many of them sold at their peak, but a large number of them are now underwater and if its the choice between putting in another $40 million or walking away… we’ll see what happens, but I expect the banks to start hiring a lot of asset managers over the next two years as these loans mature.  

I am not writing this to rip on my industry or company.  We are no different than house flippers or other private equity companies that make big bets on their purchases.    We are profit chasers.

Unfortunately, this is the mentality that ensures the electrical energy traders who worked at Enron are unemployed for less than an hour - they got picked up by Morgan Stanley and other investment banks to work their same magic with oil last summer. 

Fortunately, this is also the mindset that leads to a 50%+ IRR (distributed to investors) for 4 years.

Last 3 posts by Eric B.

• Nassim Taleb on the Economy - June 25th, 2010
• Full Circle - May 3rd, 2010
• The Dark Side :) - April 5th, 2010