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America needs to hold a yard sale.

Investment Guru Meredith Whitney has an article arguing that the banks need to sell off their assets:

America’s banks need to hold a yard sale

A clear lesson learnt from this credit crisis has been to sell and sell early. However, it appears as if US banks are setting out to make some of the same mistakes of the past 18 months all over again. In many instances, those mistakes determined who survived and who did not.

Throughout 2007 and 2008, when I asked managements why they were not more aggressive in disposing of assets, the common answer I received was that they believed current prices were too distressed and did not reflect the true underlying value. Unfortunately, the longer they waited, the less these assets were in fact worth. Such a strategy cost Merrill Lynch and Citigroup more than half of their per share capital. In the case of Lehman Brothers and Bear Stearns, capital all but vaporised. These are just some examples but in reality this applies to too many financial institutions.

Throughout 2008, hundreds of billions of dollars were raised to recapitalise US financial institutions, but this money simply went to plug holes created by holding on to assets with declining values. Until the fourth quarter, monies were raised from willing investors. However, beginning in the fourth quarter with troubled asset relief programme capital created to recapitalise these institutions, US taxpayers became the default investors.

Now, when the average taxpayer finds him or herself overextended, he or she is forced to backtrack and, in situations of duress, sell stuff (otherwise known as a yard sale). In these cases, selling a set of snow skis for $15 or a prized record collection for $10 is not desirable but is necessary. Why should the US taxpayer be forced to fund behaviour that he or she would never have the luxury of indulging in?

Citigroup provides a prime illustration to support this argument. Last Friday, Vikram Pandit, Citigroup’s chief executive, stated: “We are not in a rush to sell assets.” This comes from a company that has incurred more than $51bn (€39bn, £36bn) in writedowns and has called upon more than $45bn in Tarp money from the taxpayer. At a minimum, this seems like a company currently operating under a different rule book from that used by taxpayers. . . .

While it is never pleasant to sell one’s “crown jewels”, the strain of this credit crisis and the overextension of many bank balance sheets will require that they sell what they can and perhaps not what they would like. After all, that is what the average taxpayer would be forced to do.

I think that the US government should have a yard sale too, starting a multi-decade process of selling off public land, perhaps selling a tenth or a hundredth of a percent of holdings every year for a century.

After all, the federal government owns over half of five Western states and over 40% of nine states:

Nevada 84.5%

Alaska 69.1%

Utah 57.4%

Oregon 53.1%

Idaho 50.2%

Arizona 48.1%

California 45.3%

Wyoming 42.3%

New Mexico 41.8%

Colorado 36.6%

It’s time for America to start an annual yard sale of stuff for which the government has little use. This has the ancillary positive effect of reducing excessive government power over its citizens and resources. Does the government really need to own 45% of the state of California?

Jagermeister:
Does the government really need to own 45% of the state of California?
Of course. Can you imagine the depressive effect on the value of real estate if so much land were to suddenly come onto the market? Once Angel Island and Alcatraz were put up for sale, home prices in Pacific Heights would drop to the equivalent of Hunter's Point and the Filmore. What would Diane and Nancy do then?
1.22.2009 10:00pm
Kent G. Budge (www):
Have you seen Nevada? There's a reason the government owns so much of it. No one else wants it.
1.22.2009 10:08pm
DanS. (mail):
My sister along with two other guys (one of whom now has a Nobel prize) wrote a paper years ago about how to do this.
1.22.2009 10:13pm
Anon21:
Kent G. Budge raises the obvious point--a lot of this land has no real commercial value, making it a poor source of revenue and not a particularly obvious control over the lives of citizens. Do you think the citizens of Nevada really care that the federal government is sitting on a bunch of worthless desert land? Do you think they feel somehow controlled or oppressed by that fact?
1.22.2009 10:19pm
Connie:
When the red/blue maps on election night depict great swaths of red out west, I always think that the percentage of those large (in area) states should be reduced by the amount the government owns.
1.22.2009 10:33pm
BGates:
Harry Reid seems to be able to get revenue out of Nevada land. Why not let the rest of us try?
1.22.2009 10:34pm
MCM (mail):
This sounds like a terrible idea to me. A "yard sale" will just depress prices more...
1.22.2009 10:35pm
Andy Freeman (mail):
> Do you think the citizens of Nevada really care that the federal government is sitting on a bunch of worthless desert land?

If they're willing to buy it....
1.22.2009 10:38pm
LM (mail):
I'd absolutely support selling Alaska, lock, stock and barrel to Canada. It would eliminate the whole map non-contiguity thing, which frankly, vexes me. Also, we could cash out our oil and mineral rights. Let the Canucks fight it out whether or not to drill.

As for California, on the other hand, I have a feeling I like the Angeles National Forest more than I would the Taco Bell National Forest.

And the Utah land we have to hold as a buffer against insurrection.
1.22.2009 10:39pm
Wise investor:

MCM:
This sounds like a terrible idea to me. A "yard sale" will just depress prices more...

That would be good for me. I don't own much land. I might have bought more before, but I knew prices were inflated.
1.22.2009 10:48pm
Some Dude:
Imagine how much selling would be going on if there were no hope of a corporate "safety net."
1.22.2009 10:50pm
Tennessean (mail):
While the notion of a sale of Government land may be interesting, I'm not sure how this article lends support to the idea. The reasons Prof. Lindgren has for hoping the land gets sold (I infer) are not the reasons why a person might hold a yardsale - primarily in that I doubt that Prof. Lindgren believes those reasons are contigent upon the government being in the fiscal condition of the yard saler.
1.22.2009 10:55pm
Soronel Haetir (mail):
The news I used to see out of Nevada leads me to believe that a sizable chunk of the population isn't particularly happy about the amount of government controlled land in the state. That control is one of the prime reasons Yucca Mountain is considered such a prime nuclear dump location as an example.
1.22.2009 11:11pm
John Moore (www):
As an Arizonan, I would support such a sale, as long as it was done reasonably. The feds have been callous towards those of us who live here and try to use that land. They have mismanaged the forest leading to huge, devastating forest fires.

There's plenty they could sell.
1.22.2009 11:36pm
John Moore (www):
It has always amazed me how long homes will sit in bankruptcy. The banks act as if they have no market sense.

Unfortunately, now that bailout money is flying around, it may be rational for them to hold onto distressed assets.
1.22.2009 11:37pm
24AheadDotCom (mail) (www):
I realize that we entered Libertarian Fantasy World with this post and went through the wormhole to Libertarian Alternate Universe #34 with DanS's link, but isn't there a slight difference between ski poles and land? You know, like it's difficult to get land back, and what people do with that land may have varying degrees of negative impacts on the land and neighbors for decades to come.
1.22.2009 11:37pm
Careless:
The government only owns 69% of Alaska? who the heck bought the rest of it?
1.23.2009 12:07am
RG:
Last time I drive through Arizona (back in the early 'Oughts) there was a lot of land by Interstate 40 for sale for $200 an acre. Didn't take a brain surgeon to realize it was so cheap and also not really attracting much interest because it had no water.
1.23.2009 1:08am
David Matthews (mail):
Maybe they should have thought of selling back in 2007, when they could get a decent price?

And maybe now would be a time not to liquidate real estate?

I'm just speaking from a personal perspective. I was thinking about moving (locally) for the past year or so, but figured that maybe, when local real estate prices dropped over 20%, maybe I ought to sit tight for a few years.
1.23.2009 1:10am
grackle (mail):
Does the government really need to own 45% of the state of California? Of course, this is a silly question because the government doesn't own this land; you and I do. I like the American people owning a small percentage of the country. I think it is appropriate and can see no argument that any particular party has more right than the whole of the nation to these assets. Because someone or some number of ones live contiguously to property that the whole nation owns gives those ones exactly what rights to usurp the rights of all of us? This is an question I have never seen a very good answer to, probably because, like Prof. Lindgren's question, it is based on a fallacious implicit assertion that "the whole of us" is somehow illegitimate because somebody asserts that a few somebodies want what all of us own together.

And David Kopel wants a pony, which he is more likely to get.
1.23.2009 1:32am
trotsky (mail):
I live in an area of Northern California surrounded by federal lands -- mostly National Forest, much of it remote mountain wilderness. Since nobody lives in it, the federal management of it doesn't amount to "control" over any citizen. On the contrary, we all have the right to wander all about those lands and make reasonable (and much unreasonable) use of them -- for hiking, hunting, fishing, target-shooting, mushroom-gathering, woodcutting, even some mining.

Privately owned timberlands, meanwhile, are increasingly gated off. The companies have their own legitimate reasons for doing so, but selling more of the public forests to those companies so they could be gated off would not increase practical liberty of the majority of citizens.

A friend's brother lives in Texas, where public land is scarce. He has to pay hefty fees to private ranch owners just for a chance to shoot a deer. How is he better off?
1.23.2009 2:35am
geokstr:
And what exactly would have happened to the assets you recommended that the banks should have sold earlier, if they had somehow been prescient enough to unload them? That might have saved those banks some capital but, since the real estate bubble would have collapsed anyway, someone else would have been holding the bag for the losses.

And these bad loans totalled what - many trillions (that's with a "t") dollars? Who would have had the wherewithal to buy them anyway except other banks?

The only possibility that might have made sense is if they could have sold them to the sheiks to get some of the money back that they've extorted from us for decades. Then they would have been the ones that would have had to sell distressed assets for which demand was down, i.e., oil, which they've overpriced artificially since 1972.

And I was hoping we could save the land for when the real freight trains, social security and government pensions, hit us head on in a couple decades. We'll need to have many tens of trillions (with a capital "T") of dollars to fund those liabilities because the government has already pissed away the tax revenues they were supposed to set aside in the ficticious "lockbox".
1.23.2009 2:46am
TokyoTom (mail):
What we ought to start doing is insisting that Americans get a cut of all the revenue from these lands, and that agencies derive most of their budgets from them, so we incentivize better administration. Right now everything just goes into the Treasury for politicians to play with, and bureaucrats have no great incentives to collect revenues or otherwise not give away the store.
1.23.2009 3:40am
A. Zarkov (mail):
"The banks act as if they have no market sense."

When it come to real estate, they don't-- along with most people. This happened in real estate downturn in the mid 1990s. I saw bank owned property just sit empty for years because it was over priced. I witnessed realtor's ignore their own advice and over price their own property. There is something about real estate that makes people irrational when it comes to pricing. I think it's the failure to understand the concept of opportunity cost, and cash flow discounting.
1.23.2009 5:58am
amativus (mail):
Does the government really need to own 45% of the state of California?

Yeah, man, what would a federal department want with Yosemite Valley anyway?
1.23.2009 6:10am
Litigator - Madrid (mail):
LM:

And the Utah land we have to hold as a buffer against insurrection.


That's hilarious, and probably true!
1.23.2009 7:47am
PersonFromPorlock:

"After all, that is what the average taxpayer would be forced to do."

But the average taxpayer hasn't been bribing politicians for years. Banks (and other businesses) have been 'contributing' to candidates for years; don't they have a right to expect payback now? Has Mr. Whitney no respect for the sanctity of a business contract?
1.23.2009 7:47am
Joey Plummer (mail):
Re: trotsky
On the other hand, why should my daughter be saddled with unnecessary public debt just so you and your friends can work out your unresolved aggression issues by smoking defenseless creatures?
1.23.2009 9:47am
Clayton E. Cramer (mail) (www):
Quite a bit of the non-governmental land in some of the Western states was given to railroads as an incentive to build. I recall that every other section (that is a square mile of land) was handed over to the railroads. I recall about ten years ago, Southern Pacific started to sell some of these one square mile blocks in Nevada. Useless scrub desert--but oddly enough, they found buyers. I recall a Silicon Valley engineer explained that he paid $36,000 for his one square mile because he could put a house in the middle of it, and not have to worry about his neighbors ever being a problem.

Water? There are parts of the arid West that are literally, dry, and sometimes, the land doesn't work well for septic systems. But in much of the West, there is water. There isn't enough water or septic capacity to build a subdivision, but several homes on a square mile will work just fine.

I would love to see the rancher/environmentalist struggles over federal land resolved by putting those BLM lands up for sale. The ranchers and environmentalists can get into a bidding war over it. The environmentalists, of course, are much richer--but I suspect that many of them will decide that they can live with ranchers having some of it, if the alternative is to spend their wealth protecting Mother Earth, instead of using their control over Congress to achieve the same result for free.
1.23.2009 9:51am
M. Gross (mail):
Allow me to express skepticism that the current administration will even consider selling off federal lands.
1.23.2009 10:08am
Jimmy S.:
Just some random trivia, and I'm not sure if this is true of other states; but there is no place within the state of Utah where you can go and not be within visual range of federally-owned land.
1.23.2009 10:33am
pintler:
I confess to a strong bias here - I try to spend every summer hiking in the rock mountain states, on federal land. I would really hate it if Ted Turner bought and gated Wyoming.

I personally, would sell Central Park first. It might even be worth more than Wyoming :-)
1.23.2009 10:49am
A. Zarkov (mail):
We'll need to have many tens of trillions (with a capital "T") of dollars to fund those liabilities because the government has already pissed away the tax revenues they were supposed to set aside in the ficticious "lockbox".

There is no way the government can make good on these promises. We can't "grow our way" out of the debt. That leaves only one politically viable solution: massive inflation. It's politically impossible to renege on the promises. It's not possible to close the gap with taxes. What other solution is there?
1.23.2009 10:54am
PLR:
Harry Reid seems to be able to get revenue out of Nevada land. Why not let the rest of us try?
*snicker*

I have no strong feeling about selling off some federal land, except that this would be a lousy time to do it.
1.23.2009 11:17am
Duffy Pratt (mail):
Will you feel so good about selling off federal lands when its the Chinese and the Saudis who decide to buy?
1.23.2009 11:54am
Houston Lawyer:
Not too concerned about the Chinese and Saudis buying up our land. Every time those rich foreigners start buying up things it's time to sell short.

As part of the bargain concerning the admission of Texas into the union, the State of Texas retained title to all land that wasn't privately owned. Otherwise we would have similar issues here.
1.23.2009 12:16pm
Happyshooter:
It has always amazed me how long homes will sit in bankruptcy. The banks act as if they have no market sense.

Assuming I start acting as soon as the home payment is in default...

I have to give written notice (about one week for processing and service);

then post;

then title search (can be done at same time as posting and advertising);

then advertise (takes 6 weeks);

then get the sheriff to hold the auction (at least two weeks after the last ad runs);

then I have a choice 1) do nothing and wait for six months, or 2) hire a PI to sit on the house for a month to prepare an affidavit that the people have moved out (3/4 of the time they haven't and I have to wait the 6 months anyway)

then have a PI go by, if they are still there I have to file a 30 day notice to quit, then a court case after the 30 days, which takes at least 4 weeks to get a hearing.

Then I have to hire a company with a sheriff's badge to evict.

For those of you playing along at home, yes, it takes a year during which they are destroying the home and stripping out the copper.

The latest fun sport is waiting until the last week of the last step, and plugging the drains in the basement and smashing the pipes. The house usually has to be torn down.
1.23.2009 1:28pm
NickM (mail) (www):
California at least has some massive military bases on federal land (e.g., Fort Irwin). I have read some interesting articles on how the changing nature of modern warfare requires far larger training facilities than in the past - for example, tank companies now need at least a 50 mile stretch to practice a day's advance.

Nick
1.23.2009 2:19pm
Ben - Reno:
Actually, the struggles between the people of Nevada (and our locally-elected authorities) and the BLM are a constant and recurring issue in local politics. The fact that the US owns most of our land is one of the biggest problems we have.
1.23.2009 3:09pm
comatus (mail):
The Federal Government sold off Fort Ord, which is on the Big Sur peninsula and surrounds Laguna Seca, not my favorite sports car circuit but certainly a beautiful and attractive place.

Some wacko libertarian did the math, and figured that at prevailing rates and home-sized lots, the acreage alone could pay off the entire national debt.

And yet. The government lost money on the base closing.
1.23.2009 3:17pm
FWB (mail):
Please point out what clause/phrase in the Constitution provides authorization for the federal government to own land within the boundaries of a state.

Of course, no one can point out such as the ONLY authorization is for the feds to purchase land within state boundaries with the permission of the legislature thereof for the purpose of erecting needful buildings.

One might point to the lands as still being "territories" but then anyone living in those "territories" who voted in any election in the state wherein the "territory" is located committed a fradulent act by claiming to be a citizen of the state.

It was unconstitutional to hold on to those lands; it remains unconstitutional to keep hold of those lands.

Just another case of the fed acting outside the explicit authority under the Constitution.
1.23.2009 3:23pm
Stacy (mail) (www):
I can see some value in the yardsale concept if it would substantially clear the bad subprime mortgages from the big banks' balance sheets. That's extremely hypothetical, though, because mortgage holders would still have to foreclose in order to dump the properties, and it would likely become a race to see if the banks' exposure could come down enough to un-freeze the credit markets before the destruction in the real estate industry brought down the rest of the economy.

And the metaphors of selling a record collection or a pair of skis for $10 don't make sense. I might sell my motorcycle for half its book value, but that's because half the book value is $1500, which will buy a lot of diapers and ramen noodles. $10 barely buys McDonalds, and I'll miss the skis when times inevitably get better.
1.23.2009 3:35pm
Rocketeer (mail):
This sounds like a terrible idea to me. A "yard sale" will just depress prices more...

If by "depress prices" you mean "finally bring values into line with real, underlying value instead of what these financial wizards desperately want it to be worth," then yes, you're right.
1.23.2009 4:15pm

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