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Sale in Luxury Homes and Comments on UBS's Shareholder Report

 April 22, 2008 12:09 PM

You recall how I said that in the credit crunch of 1990, my parents bought their next door neighbor's upscale country house and 22 acres of lake view property for $300,000, down in a few weeks from its initial price of $1.1 million, essentially valuing the house at near zero? The same thing is happening now in parts of America.

Reuters is reporting today that at a recent luxury property auction in Fort Lauderdale, the auctioneer took home after home off the block within moments after opening the bidding when nobody would bid.

"On one high-rise condo in the Miami enclave of Williams Island, a 3,100 square foot penthouse previously listed at $5.6 million, he opened bidding at $5 million, lowered his price to $3.5 million, $3 million, $2.5 million, and then closed the auction, all within a minute.

[Related -Big Banks Will Get Crushed From Rising Interest Rates]

"There's just not that much enthusiasm or activity in the luxury market," said Jack Winston, a real estate analyst with Goodkin Consulting in Miami.

After the local real estate market peaked two years ago, local brokers said high-end real estate was the only thing propping up the condo market in Miami."

Apparently Donald Trump dropped the asking price of a multi-million dollar Palm Beach property by 20% and it's still on the market.

What everybody must recognize is that there is a cycle to every natural thing in life. The problems with banking industry credit come and go. The credit contraction phase we are in since early 3Q2007 will be a bad one because the credit expansion phase had been so extreme. This is nothing new to you, so why fight it?

[Related -The SEC Says It Wants Big Banks To Admit Guilt, But Doubts Remain]

Telling really was a UBS admission to shareholders in a pdf I have from UBS. On pages 40-41 of "Shareholder Report on UBS's write-downs" this text is an admission by the leading wealth manager in the world that management failed their stakeholders abysmally. Infrastructure Investment
??Inadequate systems: The existing risk management, finance and risk control systems were not sufficiently robust with respect to risk monitoring in relation to complex products. This led to an inability to obtain a portfolio view in certain products. These infrastructure issues had been raised but no substantial actions appear to have been taken to address concerns. Infrastructure limitations became even more problematic with the business growth into more complex, higher margin products. Silos
??Lack of strategic coordination: The risk functions (Market, Credit and Finance) operate as independent units, brought together to assess individual transactions. It does not appear that these functions sought systematically to operate in a strategically connected manner. NBI / TRPA Processes
??Shortcomings in approach: There was no NBI process for the CDO structuring business or for the AMPS business.

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