Obama, Volcker Pitch New Financial Regulations

Paul Volcker to Congress: "My soul is going to come back to haunt you" if banks are allowed to make trades on their own accounts. Obama agrees, but Congress is wary. Meanwhile, D.R. Horton turns a surprise profit.

February 3, 2010
By Dees Stribling, Contributing Editor

Should big banks be allowed to make trades on their own accounts? Former Fed chairman Paul Volcker thinks not, and told Congress as much on Tuesday. President Obama thinks not, and has formally proposed restricting such practices, which he and Volcker say encourages big banks to gamble big time.

Congress isn’t so sure about that scenario. Or maybe the legislative branch isn’t much inclined to impose new regulations on the financial industry now that the crisis has more-or-less passed (why fix the roof if it isn’t raining?). In any case, Volcker reportedly received a cool reception at the Senate Banking Committee.

Anticipating that Congress might do nothing, thus sowing the seeds of future bank bailouts, Volcker, 82, made a joking (half-joking?) promise to the Senate: that he’d been back as a spook. “If banking institutions are given protection by the taxpayers–I may not live long enough to see the next crisis–my soul is going to come back to haunt you,” he said.

D.R. Horton’s Surprise Profit

Homebuilders might be forgiven for forgetting exactly what the concept of “profit” is, since it’s been so long since any of them had seen one. D.R. Horton managed to turn in a quarterly profit on Tuesday, the first in three years, earning $192 million, or 56 cents a share, in its fiscal 1Q10–an unexpected result.

During Tuesday’s D.R. Horton conference call, CEO Don Tomnitz said that reaching this point was a herculean effort involving “downsizing, impairing and consolidating to adjust to an ever-changing national, regional and local economic and housing environment.”

That and the Homebuyer Tax Credit. But the road ahead for Horton will be far from smooth, Tomnitz added. “Profitability in the second quarter will be challenging, as we will not close as many homes… as we did in the first quarter,” he predicted. “In the third quarter we expect strong closings since homes must close by June 30 for the extended tax credit.”

CRE Values Up?

Newport Beach, Calif.-based Green Street Advisors released its Commercial Property Price Index on Monday. It too was something of a surprise: the index was up 1 percent in January 2010. Moreover, Green Street said, U.S. commercial property values have now risen by a little more than 10 percent since hitting a trough in May 2009.

Why is this index at odds with most other measures of CRE valuation? Methodolgy. Green Street’s index tries to capture the prices at which commercial real estate transactions are currently being negotiated and contracted–and there must be a few of those–as opposed to an index are based on closed transactions. Green Street asserts that this method’s strength is its timeliness.

Even if valuations are inching up, not everyone is persuaded that it doesn’t represent some kind of dead-cat bounce. “Values are not going to recover” any time soon, Harvey Camins, president and CEO of Chicago-based Camins Tomasz Kritt, told CPE. “The weight of debt and the fact there’s no financing available are continuing to make things tough.”

Wall Street gained ground on Tuesday, with the Dow Jones Industrial Average up 111.32 points, or 1.09 percent. The the S&P 500 gained 1.3 percent and the Nasdaq was up 0.87 percent.