Things to think about #3
Last week, the leasehold and reform bill became law in the UK. This is not the end of leasehold reform. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. This passage of the bill happened against the odds. It was crawling through parliament and when Rishi Sunak, somewhat unexpectedly, announced the general election on July the 4th, campaigners for leasehold reform—a group which yours truly have been loosely working with for a while—thought the bill would be lost. If you want to understand what happens to outstanding bills in the brief final sessions of parliament before prorogation, you need to read to up on something called wash-up. Put simply, it’s the period where outstanding bills are either rammed through as is, or kicked into the abyss never to be seen again. It is a borderline insane policy process, which breaks all the rules of legislation, simply to get the order book emptied as quickly as possible. The leasehold and reform bill made it, just, though without key additions such as a cap on ground rent or a ban on forfeiture. This is bitterly disappointing, especially in case of the former given that an agreement to cap ground rents to £250 pa was virtually agreed by the department and HMT, or so we’re told. But I guess we live to fight another day rather than having to start over.
The final debate in the House of Lords before the bill was sent to the House of Commons for the decisive nudge into law was fascinating. Many Conservative peers who, up until now, have had nothing to say about leasehold reform turned up, waxing lyrically about breaches of freeholders’ human rights and the danger of retrospectively changing existing contracts via legislation. I disagree.
Extortionate behaviour, rent seeking and bullying—of which leaseholders are regularly victims in the current system—are not protected rights under the much-cited A1P1 in the EHRC. And if someone is willing to take the government to court to argue that they are, the government must be ready to defend itself and the people it represents, vigorously.
The objection against retrospective legislation and regulation is even stranger. This argument is best defeated by noting that if governments and public policymakers adhered to such a rule, it would in reality be difficult to do anything at all. Prospective legislation—for example banning all nominal ground rents after a certain date—is not implemented in a vacuum. Prospective legislation often has profound retrospective effects, in the example above by creating a two-tier market for leasehold properties, that a government must accept, account for and act upon. Once we realise this, we see that governments often have to make changes to existing legal structures, contracts and arrangements either directly because of inequities or inefficiencies or indirectly because such structures are affected by new rules and legislation. Conservative peers do themselves a huge disservice when they attempt to lock government policymaking into a vice where everything that has existed until this day is sacrosanct and unchangeable. This is Conservatism taken to an absurd extreme.
A young woman laments
This TikTok video has been going the rounds on social media lately. It portrays a young, presumably successful, and attractive young woman decrying her inability to find “love”, despite her efforts to pursue a rewarding career, take care of herself and, more generally, to turn herself into the most attractive proposition possible for a future partner. It is always difficult to gauge whether the sentiment expressed in such videos is real or fake, but I am assuming that her sentiment is genuine. If it is, she is suffering, and I feel bad for her.
The video has drawn two overall, and predictable, reactions from the peanut gallery. Firstly, there are those who argue that this woman is simply being too picky, and that she should trade down and accept one of the many suitors that she will undoubtedly have had at this point. Secondly, many believe that her inability to find a suitable match reflects the reality that men have gone “soft”, and have forgotten to be the kind of men that women actually want, largely because society have told them that they must be less manly. Both are clichés, but both also likely has a grain of truth and both can be true at the same time.
I think we have, as a by-product of the over-emphasis on labelling any and all traditional male virtues as ‘toxic masculinity’ sold many young women down the river. We are inadvertently encouraging, perhaps even expecting, young women to embody traditional female virtues and represent, appropriate (?), the values and traits that we don't want men to embody, because it is toxic when they do it. That puts a lot of pressure on young women to be everything and anything, because they can, without anyone asking whether they should
Where are the credit lines to the shadow banks?
One of the most interesting stories in the world of finance in the past few weeks is the story about the struggles of Starwood Real Estate Investment Trust. From the FT:
Starwood Real Estate Investment Trust (Sreit), a non-traded US property landlord with $10bn in net assets, has had to tap credit lines to meet heavy redemption requests. Shareholders, largely comprised of wealthy individuals, tried to withdraw $1.5bn of shares from Sreit in the first quarter. Such private Reits usually do not allow more than 5 per cent of the fund’s net asset value to depart in a quarter. Blackstone’s similar $60bn vehicle, Breit, had to throw up its own gates last year.
To be clear, investors in Sreit knew what they were getting into when the poured money into this vehicle, but the dynamics here are interesting, and ominous, all the same. If Sreit can’t raise equity capital, in effect pull in money from other investors to fund exits, or sell its assets, it must, as is the case now, draw on an emergency liquidity line, presumably from a commercial bank, to fund redemptions. This raises some fundamental questions about the liquidity availability and backstops more generally in the financial system.
The financial system today is filled to the brim with structures in which paper returns are high, in part because the stewards of the capital mark their own homework. This is true especially for private equity and other private capital structure where daily, or even monthly, mark-to-market are shunned in favour of long holding periods. In this world, returns compound according to byzantine and murky NAV valuations that are difficult to verify until the point at which the asset is sold. And if the asset under question is suddenly not worth what it was expected, investors hoping to get their cash back are told to just wait a little longer, with knock-on effects on other asset classes. This mismatch extends to the by now all-encompassing world of ETFs where some funds also exist with significant mismatches between their daily trading liquidity on exchange and the liquidity of their underlying assets.
It is a truism in any financial system that prices will collapse and liquidity dry up if everyone decides to sell up at once. But the point I am getting here is a bit more nuanced. Who, if the chips are down, will provide the liquidity lines to the by now vast and all-powerful providers of public and private fund structures that investors of all stripes and sizes rely on to construct their portfolios? Specifically, I don’t think anyone really understands, or indeed is able to model, when a tipping point might be reached by which liquidity in otherwise freely traded fund structures might suddenly evaporate or decline substantially. Do large private equity funds and ETF providers have direct credit lines with central banks, or will the ones the have with commercial banks be enough in a crisis? Let’s hope our financial overlords have war-gamed a run on one or more of the world’s largest private equity and ETF providers, just to be on the safe side.
Late Admissions
Glenn Loury’s autobiography, Late Admissions: Confessions of a Black Conservative, is now available to buy. I am looking forward to reading it. I am big fan of Glenn’s. He is an excellent economist and a towering intellectual with a capacity to discuss and debate just about anything. He is most well-known for his contributions to the discourse and debate on race and racial inequality in the US, but his repertoire is much broader than this. I often listen to his weekly podcast, the Glenn Show, in which he tackles the news of the day, tilted towards the US news cycle and political economy, often with his co-host John McWhorther, who I am also a big fan of. As far as Glenn’s new book is concerned, I enjoyed the conversation between Russ Roberts and Glenn on Econtalk, in which Glenn and Russ have a good heart-to-heart on Glenn’s life, which is honestly laid bare in the book. Go listen!