Crapshoot in Vegas

Crapshoot in Vegas

It's hard to think of a more appropriate place than Las Vegas for the American Securitization Forum to hold its annual meeting this year.

Inside the lavish Venetian Hotel last week were thousands of executives from the banks, investment houses, insurers and rating agencies that created, peddled and, in many cases, purchased the all those exotic debt instruments at the heart of the current financial crisis. The securitization market, which only recently pumped out hundreds of billions of dollars in new securities each year, is now closed tighter than a Coney Island hot dog stand in midwinter. And most of those securities are selling for cents on the dollar, if they are selling at all.

Outside, meanwhile, up and down the famous Strip, work was continuing (or not) on dozens of projects that, taken, together, represent the largest concentration of real estate investment at one time in one U.S. city -- most of it looking to the same dysfunctional securitization market for permanent financing.

The hopeful chatter inside the Venetian was that securitization was not dead, just on hiatus until investors are able to determine the real value of the securities they hold and until the industry can come up with simpler and easier-to-evaluate versions of its sliced-and-diced loan packages. The rating agencies took the opportunity to introduce new standards and procedures for evaluating risks of so-called structured finance products. The insurers vowed to raise the capital necessary to restore their AAA ratings. And Robert Steel, the former Goldman Sachs partner turned deputy treasury secretary, flew out to declare that the industry needed to accept "some degree of responsibility" for the current fiasco and commit itself to cleaning up its act.

It's unlikely, however, that the needed repairs can be done quickly enough to prevent Las Vegas from turning into the capital of the commercial real estate meltdown. And should that occur, we can say that, thanks to the miracle of securitization, what happens in Vegas will definitely not stay in Vegas.

Bad Week for K Street

It's hard to imagine a worse scenario for Washington lobbyists than the prospect of a McCain-Obama race for president. These are the rare politicians who don't see the world through the political lens of special interest groups. They don't rely on lobbyists and interest groups to raise them their political cash. Nor in filling top positions are they likely to recruit the usual suspects who come through the K Street revolving door.

Given the tone of their campaign rhetoric and the personas they present to the voters, one can only imagine the "make my day" relish with which they would wield their veto pens against earmarks and special tax breaks slipped into House-Senate conference reports without any warning in the dead of night.

If this turns out as I suspect, top lobbyists will have to begin brushing up on old skills most have long since forgotten: marshaling hard facts and cogent analysis to make convincing arguments.

Airline Mergers

If all goes well, airline mergers will soon be announced between Delta and Northwest and between United and Continental. And, contrary to what you might expect, that could be a boon to competition.

Not that that's what the airlines have in mind. But if they are on the ball -- an open question -- the Justice and Transportation departments will use the approval process to force the airlines to give up control of the some of the gates, slots and flights they now use to divide up the market and exercise a virtual stranglehold over too many hubs and routes.