Wall Street is endlessly creative when it comes to figuring out ways to suck up your money.
Things are looking up in South Hampton – and I am not particularly pleased about this.
As I have mentioned in the past, back in the ‘60s, my grandparents managed to pick up a small cottage on Long Island’s Peconic Bay – one of the more middle-class outliers of that famed oasis of uber-rich CEOs and ultra-chic novelists.
Now, please don’t start thinking that I am some kind of silver-spoon trust-fund kid. The joint only had two overcrowded and unheated bedrooms, one toilet, and an outdoor shower. My folks drove us out there each summer in an overloaded, rusting Ford Falcon that, like as not, would overheat at least once each way.
Still, it was the beach, which beat the dickens out of schvitzing in the City all summer, and I remember it fondly (jellyfish and all). Over the years, Super-Chic South Hampton grew and grew, eventually engulfing and annexing its middle-class neighbors. In the end, we simply had to sell the place to fund Grandma’s retirement.
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The Dream Slips Away
Now, I must confess that I have been watching Wall Street’s collapse with something less than scientific disinterest.
Perhaps, if things got bad enough, the tumor that is South Hampton might actually shrink down to the point where I could buy back the old place – or something like it! Wow! Imagine taking my kids down to that same little beach on the Peconic…
But no, instead it appears my little pipe dream is melting away faster than those Creamsicles the ice cream truck brought around at lunchtime. It seems the veritable flood of cash that Wall Street pilfered from the public till is finding its way out to the Hamptons again.
Area home sales are up 32% Q3 2009 over Q3 2008. And, while median prices for the region are still off by about 2.4% Y-O-Y, houses down off Rt. 27 are up already up some 67%.
To give you a sense of scale, the cottage Grandma picked up for $13,000 back in 1961 would probably cost me $1.3 million today.
Blunting Washington’s Claws
So, is the dream completely out of reach? Maybe, and maybe not. This whole little spate of New York spending is still more dependent on the gullibility of American taxpayers than on any real uptick in the American economy. And lately there has been at least some effort on the part of Washington to choke off excessive pay at any Wall Street outfit that is still accepting public largesse.
So perhaps all these “clawbacks” will undercut the Hamptons’ real estate boomlet? Ahhh, who am I kidding?
Over the past couple of days, Washington has bragged ad nauseam as to how the Treasury’s Special Master for Compensation, Kenneth Feinberg, is attempting to retrieve Wall Street’s ill-gotten gains. And I suppose it is true – to a certain extent.
Washington is indeed whittling away at the pay packages for some of the more prominent figures. But these men are certainly wise in the ways of money, or they wouldn’t have attained their positions in Wall Street’s catbird seats in the first place. So, it should come as no shock to you when I reveal that most have managed to blunt Washington’s claws by some 30%.
We Make Money the Old-Fashioned Way: We Filch It From the Highway Fund
And then there are the “smartest guys in the room,” those slicksters at Goldman Sachs, who have found ways to profit on most every single aspect of this whole debacle. Washington cannot touch or even talk about Goldman pay packages, because they got out from under TARP so fast, sonic booms were heard in New Jersey.
Speaking of New Jersey, let me tell you a little story about how these guys at Goldman make all that dough, and why I will in all probability never get back to the Hamptons.
Back in 2003, the Garden State’s Transportation Trust Fund Authority sold some $345 million in bonds to finance some road and rail projects. Now, in order to get a decent price on these bonds, the state was forced to offer investors a floating interest rate tied to the Fed’s prime rate.
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A Deal They Couldn’t Refuse
Just to cover their behinds, they bought a “rate hike insurance policy” from Goldman Sachs. If rates climbed precipitously, Goldman would cover a good chunk of the State’s extra payouts.
In the end, rates did indeed climb, but only for a while. In point of fact, they are currently lower than when the Authority first sold those bonds. And New Jersey has taken advantage of that fact, by swapping the variable-rate bonds for fixed-rate bonds. Picked up a dandy penny or two along the way.
Problem is, the contract for that now-obsolete insurance policy is locked in place through 2019. That’s right, the state of New Jersey is paying Goldman almost $1 million bucks a month to insure bonds that no longer exist.
There’s Just No Way I Can Compete
One might presume that there is some sort of “buyout clause.” But no one in Jersey can seem to figure out what it is, or whether it is more or less than the $11.4 million that has been funneled across the river – and most probably out to the Hamptons – since the bonds were sold.
So long as the bureaucrats in New Jersey and Washington remain clueless, and the con men at Goldman et al. remain shameless, the Lass clan is pretty much assured to be sweating out its summers right here in Maryland.
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