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Copyright (c) 2008 Drew Stevens PhD

I just completed my morning coffee and dose of Wall Street Journal when I read that AIG the world’s largest insurer, spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, the expense-spent days after a massive billion-dollar bail out. These egregious individuals used money-borrowed money for an annual sales feast.

Not only is there issue with the timing of the event, but also once again, we take issue with leaders that lacking critical thinking, empathy, and humility. While many pundits find concern with interest rates and liquidity, the true issues lie in the leadership of many banking and credit institutions. The avaricious leadership of many organizations operates in a callous vacuum with little concern for its most vital assets- employees and customers. The items binding these assets to leaders are trust and respect, which appear to feverishly diminish. The problem with many of these leaders is creating a Darwinian environment. It is difficult to question the morale and productivity issue when so many leaders are narcissists and employees abhor their leaders.

Fortunately, there is a microcosm of these leaders. Many others understand the value of the employee and the mantra of customer first. Curiously, what is it that separates quirkiness from exemplary? We believe it comes down to six basic premises.

Exemplars. It seems ages ago, but leaders once were within organization. Names such as Iacocca, Lincoln, Ford, etc, were associated with pragmatism and trust. Very few leaders allow innovation, collaboration and excel at organizational communication. Present leader must illustrate vision and value. They need to say what they mean and mean what they say. When more leadership personifies with names such as Jobs, Kelleher and Barrett, the trust factor will return.

Accountabliity. Our firm speaks of this much simply because there is not enough. Leadership simply does not hold individuals accountable. In addition, current boards of directors do not hold leaders accountable. Ethically – speaking boards and their directors continue morale corruption stemming from perennial relationships. These must terminate. Boards must develop from strangers and stakeholders that desire organizational best interests. Further, boards and executives must be accountable. Rather than pacify with bonuses, and options, underperforming leaders must amend or terminate

Action. Similar to issues of accountability, organizations must require timetables and action steps. Employees and executives bemoan work. We often hear how occupied individuals are. We constantly hear of the complaints related to massive workload. However, statistics show that workload relates to procrastination. If organizations are so busy individuals would not have time for cigarette breaks, lunch or in the case of AIG spa outings. Ethics. Where are the ethics in organization? After the debacle of Enron and World Com, Congress developed the Sarbanes-Oxley Act to protect against flagrant behavior. Organizations cannot provide an ethics assessment for each leader, but clearly, organizations with issues lack leaders with integrity. When Boards of Directors place more checks and balances on the leadership, perhaps there is a return to normalcy.

Communication. Where is the feedback in organizations? Leaders must provide consistent and constant communication. A study by the Corporate Leadership Council in 2003 reveals leaders have a tremendous impact on an employee’s level of commitment, of which 70% is relationship. If communication is the core of any relationship, leaders cannot overlook the most vital tool. If leaders are too absorbed begin leaders, perhaps it is time for a change.

Trust and Respect. When leaders lose trust, they lose everything. We use an exercise in our workshops comparing good and bad leaders. The core or each is charisma and trust. Followers that trust leaders, do anything for them. Review history for great examples, from Attila the Hun, to Hitler to Saddam Hussein; the respective followers right or wrong, place all their faith because of trust. Similar to communication, trust is the core of great leadership.

Any ideas?

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

It seems almost every day I speak with a homeowner struggling over the moral dilemma of walking away from their upside down loan.

I don’t ever tell a homeowner what to do in these situations, but in going over the numbers, a pretty clear answer usually presents itself. 

Even though these homeowners fully understand the math and logic of the answer, they have a very difficult time coming to grip with the emotional part of the decision.  Many state they weren’t raised that way or ask themselves what would their family & friends think of them.

From my experiences, these homeowners with upside down loans have to go through their own sort of 5 steps of grieving to deal with the situation.

They should all just take a lesson from the fat cats on Wall Street, who only care about profit and power, and have no qualms about walking away from their upside down mistakes.

MORGAN STANLEY WALK-AWAYS

Back in December, Morgan Stanley announced they were essentially giving back 5 San Francisco office buildings to their lender where they were upside down.  Seems they overpaid for them at the height of the market in May 2007.  (the addresses are One Post, 201 California St., Foundry Square I, 60 Spear St. & 188 Embarcadero).

Morgan Stanley spokesperson Alyson Barnes spun it to Bloomberg News like this, ”This isn’t a default or foreclosure situation.  We are going to give them the properties to get out of the loan obligation.”

This after Morgan Stanley turned Crescent Real Estate Equities over to its lender Barclays Capital in November for the same reason.  Seems their $2B loan was due in August and extensions were only delaying the inevitable default.

Wow!  Can I try this with the lenders on some of my rentals?

Oh even better, despite these walk-aways, Morgan Stanley will be paying their employees 31% more in bonus income in 2009 than they did in 2008.

If you’re a homeowner with an upside down loan from Morgan Stanley Home Loans or Saxon Mortgage (owner by Morgan Stanley), now may be the time to call them up and just give your home back to them.  Tell them Alyson Barnes said it was ok.

TISHMAN SPEYER PROPERTIES - A RECORD WALK-AWAY

I remember reading an unflattering article a few months ago about a real estate investor who walked away from around 60 properties in the city of Pontiac, Michigan.  The reporter was pretty hard on the investor in the article.

I wonder what that same reporter would write about a company walking away from 11, 232 apartments in Manhattan? 

Seems this company’s plans to convert the apartments into luxury condos and flip them fell apart with the economy. 

Now the rental income doesn’t cover their mortgage payments and their tired of putting in their own money to cover the difference.

Not that the company will be hurting - they still own the Rockefeller & Chrysler Centers in New York and have a total of $33B in assets.

Hmm, they have the money to pay but are still giving the property back?

It’ll be interesting to see how long this record stands…

WHERE DID AMERICA GO WRONG?

The Declaration of Independence states,

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

Obviously though, when it comes to upside down loans, we’re not all created equal.

                                                                    # # #

 In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He’s presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA’s, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://DrewsMortgageNews.com.

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