OwenBloggers: Ryan Dix - MBA 2009

You've Got to Read This...

As the US House of Representatives rejected the proposed $700 billion rescue plan, the Dow Jones Industrial Average slid 777 points today, posting it's largest ever one-day point drop.  Over $1.2 TRILLION in equity market value was erased.

Did anyone see this coming?  The answer is YES. 

My friend Ryan (there are a lot of Ryans here at Owen) recently passed along an article written by Steven A. Holmes of the New York Times.  It was published almost nine years ago to the day.  For your convenience, it is reproduced here in its entirety:

Fannie Mae Eases Credit to Aid Mortgage Lending

By STEVEN A. HOLMES

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent. 

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

See the article at The New York Times.

Perhaps it's Time for the U.S. Government to Diversify?

Ladies and gentleman, please join me in welcoming... The U.S. Government!  As most of you know, Treasury Secretary Henry Paulson announced Sunday the largest government bailout in American history, placing the mortgage giants Fannie and Freddie in a government conservatorship, a legal status similar to Chapter 11 bankruptcy. 

A quick rundown of the details:

• Their boards and chief executives will be replaced
• The government will make quarterly investments (Amount to be determined...)
• The companies must reduce the size of their portfolios by 10% a year, starting in 2010
• Both entities will have access to a "Secured Lending Credit Facility," just in case they can't raise enough money on the open market. Hmmm.

Frankly, no one is really surprised that any of this happened.  Whose fault is it, you ask?  According to Forbes:

• Congress - They created the GSEs.  Given that Freddie and Fannie were born on Capitol Hill, it's no wonder their lobbying groups knew exactly how to walk, talk--and most importantly--where to spend money.
• Regulators - Specifically, the Office of Federal Housing Enterprise Oversight.  The capital requirements for the GSEs were created back when residential real estate was considered "low risk."  Nowadays the only thing about residential real estate that's low is the price.  And the ROI. 
• Fannie/Freddie Management - Remember Frank Raines?  Fannie's ex-chief "agreed to disagree" on the 2004 accounting scandal.  And how about Daniel Mudd and Richard Syron?  These guys delayed billions worth of capital raising.  Why?  Their books weren't in order.
• The Street - Can you really blame investors though?  The quasi-governmental status of Fannie and Freddie allowed private investors to seek reward without shouldering the appropriate risk (or so they thought).  Well, that is until the bottom fell out.  What's the latest share price?  That limit on short-selling sure fixed it. 
• Central Banks (Bondholders) - Did the mortgage boom fund the Olympics?  We may never know.  The thought that these large bondholders might exit ultimately prompted this, the largest federal intervention in private enterprise ever.

So here's to you, Mr. Government Should Take Capitalism Out For A Couple Of Drinks And Then Back To His Place Man!  You belong in a Bud Light "Real Men of Genius" commercial.  And while you're building a portfolio, perhaps you should throw in some Airlines and Auto Manufacturers.*

*Disclaimer:  I understand that a bunch of people with IQs much higher than mine decided the bailout was the best course of action at this particular moment in time, given the current circumstances.  I happen to believe that the bailout was neccessary.  However, it's still important to have the conversation about WHY we ended up where we're at, and how to avoid it in the future.

"Who said your second year was going to be easy?"

Well... a lot of second year students from the Class of '08.  The truth of the matter is my second year is following the same frenetic pace as the first.  Granted, we're only three weeks in.  I've also brought most of this on myself.  Here's the quick list of why my life is a little crazy right now:

• Still working for the company I interned with this summer
• Building financial models and devising "strategery" for a local entrepreneur
• Working diligently in my capacity as Student Government President.  This includes answering emails about why we still can't seem to get any decent staplers around here.*
• Oh yeah... I added an Accounting Concentration.  Because I like self-inflicted punishment.  This includes:

                    -Financial Reporting, aka Acct 411 with Debra Jeter.  An absolute must take while you're at
                     Owen.  It's like a 4.5 month journey through purgatory** that's so, so worth it.  You're
                     paycheck will thank you later.
                    -Taxation of Business and Investment Transactions (MGT 412) with Bill Henderson.  Another
                     must take.  Not for the faint of heart, though.  Second week of class... walk in... pick up a
                     six pound manilla envelope... a tax return... "Class... this is your final exam."  Sharran said
                     it took him 75 hours.  Better get started.
 

• Leadership in Action Program (LIA).  Owen is one of the only b-schools in the country to offer anything like it.
• Occasional attempts to spend some time with my wife...
• And last but not least... the huge elephant in the room... The Full Time Job Search.

I know this is a little crazy, but hey, you only go to business school once.  I'm a firm believer in making the most of your time, and... I've also got a little bit of a complex.  It's a matter of proving to myself that I can do it.

When asked in a recent LIA focus group, "Why are YOU taking LIA?"

"Because this year is about pushing the limits.  This is a safe place to do it."

Next post:

Full time job search strategy.

* Believe it or not, I frequently receive emails about the "state of the staplers."  My standard response: "If you jam the stapler, you will inevitably break it permanently if you continue slamming your fist on it.  May I suggest carrying your own, personal Swingline?" Just watch out for Lumbergh.
** I highly suggest jamming out to Hans Zimmer's "The Dark Night" soundtrack while crushing income statements, balance sheets, and statements of cash flows.

 

Internship: Day Eighty-four

2:30 am: I awake from a sound slumber.
2:32 am: Pull out the laptop.  Surf the web for 20 minutes thinking I'll get tired again...
3:00 am: Shut the laptop.  I'll give myself a half hour to fall back asleep.
3:25 am: Can't stand it.  Let's go in to the office.
4:18 am: On the road again.
4:50 am: Nasty crash on the 285 on ramp.  I almost become a part of it.  However, I have cat-like reflexes.
5:05 am: Knocking on the door at Starbucks.  In super-exaggerated Ryan fashion I gesture at my wrist and mouth to the dude at the counter, "WHAT TIME DO YOU OPEN?"
5:05:04 am: "FIVE-THIRTY."
5:05:05 am: Damn.
5:06 am: The laptop's back out.  I can work from the parking lot.
5:29:59 am: "Good morning and welcome to Starbucks!  What can we get started for you?"

I have five days left here in the ATL.  I'm completely torn.  I love it.  Not since living in Manhattan have I felt a general "city energy" like this (granted, I've been in Knoxville, TN, Winston-Salem, NC and Nashville since leaving New York).  I'm also very excited about returning to Nashville.  One, I get to live with my wife again.  This is a very good thing.  Two, I can't wait to *crush* the second year of b-school.  I know I'll enjoy it immensely, but there's also a part of me that views it as but another hurdle to starting my new career.  I've had the tremendous opportunity of working with several very successful real estate veterans.  I've learned more than I could ever explain in one blog post, both about real estate and myself.  It's hard to think I have to leave in five days.

I've seen a lot this summer.  I experienced the high of a multi-hundred million dollar deal close.  I've also sat through some pretty depressing early morning discussions revolving around the current state of the capital markets.  One week I was living, breathing, eating, sleeping and cursing this gigantic Excel model I created that at one point was so bloated it topped out at over 15mb.  Another week I watched my white paper "launch" the team's brand new specialty practice.  Absolutely awesome.  Last week I was told the group would like for me to continue working with them during the school year.  Excuse me?  I'm afraid I'm going to have to think about it... Just kidding.  I really couldn't have dreamed of a better internship.  The other night on the phone I asked my Dad, "Have you ever had a time in your life when every day was better than the day before?"

That's how my life is right now.  The feeling is really indescribable.

So why did I awake so early this morning?  Who knows.  All I can say is that it's been a long time since that happened.  Honestly, it felt like when I was in high school and I used to wake up super early for a wrestling tournament.  You knew you needed to go back to sleep, but the adrenaline was already flowing.  There was a battle waiting for you.  That's what I felt this morning in the wee hours before dawn.  I knew I wanted to set a certain pace for this week.  Really, it's a pace for starting the second year of business school and the career that waits just beyond the horizon.  There's a battle to be fought there... challenge and opportunity intertwined... just waiting.

Here I am: Day Eighty-four.

Internship: Day One

Let me paint the scene for you...

5:00 am: Alarm goes off.

5:00:02 am: Alarm gets thrown across the room. (Damn... that's my phone too...)

5:05 am: Alarm goes off again. I'm up.

5:06 am: My finger hits the "on" switch on the "juice of life" (aka, coffee) machine.

5:45 am: I need to leave. I decide to change my pants. I'm feeling to good to wear grey.

5:59 am: The trusty Honda roars to life. The sun's starting to peek its little head over the Georgia hills.

6:10 am: Make a right on Peachtree Industrial Blvd. My trusty Mapquest printout (courtesy of my ever-prepared, lovely wife) says this will turn into Peachtree Road. Here goes.

6:50 am: Drive past my office in Buckhead. I don't need to be there for over an hour.

7:00 am: Eureka! I've found the local Panera. Hot bacon-egg-and-cheese Breakfast Ciabatta, here I come!

7:04 am: A quick glance at the WSJ as I wait in line. Atlanta gets started early...

7:06 am: I order my sustenance. I switch it up to a chai tea instead of coffee. I've already had two cups, and I'd hate to be geeking out on caffeine my first day at a new job. Twi~tch.

7:10 am: I start this post.

Yes, it's the first day of my summer internship. For all you soon to be first-years out there, this day will come faster than you can possibly imagine. That being said, I've got one word for you: patience. I haven't written about "the internship" for several months. Why? Because I didn't hear the blessed, "we'd like to have you join us for the summer" line until the last day of classes. Well, that's kind of a lie. I'd actually received other offers (my first in January), but I didn't receive "THE" offer until the last day of classes.

But then I got it. You remember that long post about the coveted Real Estate Summer Internship? Well, I'm glad I took my own advice (that whole patience thing). It literally took the entire year to lock up this job. But it's "THE" job, with "THE" company, and "THE" partnership that I told myself I wanted from day one. It's like if your an aspiring investment banker, and you come to school with a summer position with Goldman being your first choice, dream internship... and you get it.

I got mine.

All this to say, it can be done. And, it can be done in Real Estate... at Owen.

Here I am: Day One.

The Samba Will Continue...

If you're a regular reader of OwenBloggers, you know his name: Sharran Srivatsaa. Just like the rest of the outgoing Class of 2008, Sharran's leaving us. Sharran--for those of you who don't know him personally--is one of those "idea" guys. You know the ones... They just can't seem to sit still. They're always throwing off-the-wall ideas around. They've got a "to-do" list a mile long. They just seem to buzz with a frenetic energy. And they never take "no" for an answer. That's Sharran.

The really cool thing about people like Sharran is that they come up with ideas like OwenBloggers. Not only do they think this stuff up, they then actually bring the idea to life.

Thanks, Sharran. Thanks for dreaming, for pushing, for encouraging, and for working to bring your "big ideas" to life. Owen is a better, more creative place than it was before you came. We wish you the best for this next chapter... Long live the rhythm.

Cheers,
Ryan & Serdar

Follies

At Owen we have annual tradition called, "Owen Follies."  Essentially, a clandestine group of second and first year students works for six months collecting video and pictures, and creating skits roasting their classmates.  It should be noted that professors are not immune. 

Last night the majority of the student body converged on the historic Belcourt Theatre for the showing...  Liquid libations greased the wheels, and we were off!  Combine National Lampoon's, Pee Wee's Big Top, America's Funniest Home Videos, and a little bit of "harlequin romance" involving some of our favorite second year gentlemen, and you've got a sense of what Follies is. 

I came here to learn skills: statistical and financial modeling, strategy, operations management, accounting and tax, etc.  What I've discovered is that some of my most meaningful (and enjoyable) experiences happen outside the classroom in the company of good friends.  Follies is one of those experiences.  If you're looking at b-schools, take the time to get a good sense of the community and your future classmates.  You're going to spend a lot time with these people developing relationships (both personal and business) that hopefully will last a lifetime. 

Besides, who wouldn't want to see themselves plastered on a big theater screen as Napoleon?

Dix says: "Follies was fabulous!"

What's in a number?

Did you know that Babe Ruth struck out 1,330 times, and that he led the American League in strike outs in 1918, 1932, 1924 and 1928?  How about the fact that Walt Disney’s Pinocchio lost $1,000,000 in its first release in 1940?  Some other interesting numbers:

1,000+ → The number of companies Colonel Sanders visited and was rejected by before finding a buyer interested in his “11 herbs and spices.”

5 → Number of times Henry Ford went broke before finally succeeding.

7 → Age at which Albert Einstein finally learned to read. 

2 → Number of times Douglas MacArthur applied to West Point and was rejected.  They let him in on his third attempt.

27 → Number of publishers who rejected Dr Seuss’ first children’s book.  The 28th publisher, Vanguard Press, sold over six million copies of And to Think That I Saw it on Mulberry Street.

What’s your point Ryan? 

Numbers aren’t everything… and they certainly don’t tell the whole story.

The US News & World Report Business School rankings were released to the public this morning.  As most of you know, we ranked 34th last year—a gain of 15 places over the previous year.  This year we moved to 44th. 

Let’s dissect this number.  The ranking is calculated using multiple categories.  These include:
Peer Schools Assessment (25%)
Recruiters Assessment (15%)
’07 Admissions Data (25%)
’07 Starting Salary including bonus (14%)
’07 Employment Statistics (21%)

If you compare the 2008 numbers to 2007, you’ll find that our move in the rankings was a result of the trailing employment statistics for the class of 2007.  Specifically, compared to the class of 2006 the MBA class of 2007 had 1.9% fewer students who had accepted job offers at graduation and 3.7% fewer students with accepted job offers three months post graduation.  Breaking it down even further we see that this is a difference of 3 accepted offers at graduation, and 5 accepted offers three months out.

What you may miss in the cumulative ranking is the fact that we rank 23rd for average starting salary and bonus. 

Are rankings important?  I’d be lying if I said “no.”  Rankings provide great marketing material, and there’s certainly a level of prestige associated with them.  Do they tell you what school is better than another?  Depends… Most of us didn’t (or aren’t) using US News & World Report’s exact ranking methodology when evaluating b-schools.  The real question is what makes one school “better” than another for you.  It depends on your personal ranking criteria.

Let me tell you why I love this place and the people that work, study, and graduate from here.  Owen is a place that takes strategic chances.  I was somewhat of a “non-traditional” applicant.  Yes, I’d started my own business and had a solid GMAT score and GPA, but I was also a “divinity school dropout.”  Thankfully, my admissions interviewer—Lauren—saw a determination and commitment that my application alone couldn’t convey.  They took a chance, and I’ve flourished.  Now, eight months after walking into my first MBA class I’m interviewing with fortune 500 companies, having lunch with CEOs, rocking my GPA, and helping shape Owen’s future as president of the student government.  Not bad for a kid from little ol’ Farragut, Tennessee. 

It’s this place though…  It pushes and pulls at you, and what I’m finding is that for most people the really good stuff bubbles out.  Some of my friends helped make the world a better place during spring break, others are finding romance in unexpected places, and still others are building companies that could one day be industry-shapers.

Dix says: “You can’t get that from a number.”

Must See TV?

Have you seen Fox's new show, "The Moment of Truth?" This show thrives on what I call, "the train wreck effect." Not since watching "Faces of Death" (<-- anybody pick up on this '90s reference?) as a middle-schooler has it been so difficult to pull your eyes away from the screen. According to Fox:

THE MOMENT OF TRUTH will put participants to the test -- the lie detector test -- to reveal whether or not they are telling the truth for a chance to win half a million dollars.

On THE MOMENT OF TRUTH, the challenge is simple -- answer 21 increasingly personal questions honestly, as determined by a polygraph, and win up to $500,000. This is the only game show where participants know both the questions and the answers before they begin to play. Prior to playing, participants are strapped to a lie detector and asked a series of questions by a polygraph expert, who records their answers. At any time, between the polygraph and the televised game, participants can change their answers or walk away from the competition.

To win $500,000 participants have to tell the truth. Of course, the questions are easier when the stakes are low – but as the prize amount increases, they will be challenged to fess up to matters they might normally lie about. The touchier questions could be especially revealing because participants reveal their answers in front of spouses, relatives and friends, hanging on every word. What deep dark secret will someone divulge for hundreds of thousands of dollars?

I really think this show represents just about the worst of modern American "reality" television. However, as a business decision it makes sense. It's certainly not going to hurt Fox's brand... the network is not exactly known for its "highbrow" content. Networks generate revenue through ad sales. Ad slot prices are determined by # of viewers, etc., etc.

Check out these two clips from the most recent episode. Keep in mind that contestants keep winning money as long as they answer truthfully. As soon as he or she lies though, all winnings are forfeited.

Dix says: Provocative programming pays. Can I see the COGS line item "soul," please?

Real Estate Reality Check

Mod III is coming to a close, and while many of my first-year comrades are hunkered down in the library studying activity-based costing and transfer pricing (our accounting final is Saturday... arh...), I am spending every waking hour in hot pursuit of the elusive real estate internship.

For those of you who don't know much about the real estate internship process, it's much different than "traditional" MBA routes like marketing, banking, HOP, etc.  If you're interested in real estate, be prepared...  most students will not land an internship (or job) through the traditional career services channel or through the on-campus interview process.  Most real estate firms just don't do it that way here.  By and large, the internship hiring environment mirrors the larger real estate world in its focus on networking and "soft skills."  It's all about who you know; and to know people, you've got to get out and meet them.  It is assumed (read: required) that students have strong quant skills.   But, if you want the job you're going to have to hit the street and work the phones.  The whole process  does a good job of "vetting" potential hires.  They'll know if you've got what it takes from a people-skills perspective.

Also, the hiring process is much more "just-in-time" for real estate.  I do know that at least one major firm has instituted an across-the-board hiring freeze because of the recent softening of the commercial market.  But, I've been told that even that won't stop individual regional offices from picking up folks for the summer if they really like you.  So back to the phones...

Now I know that Owen is a little unique in that our real estate program is still rather young.  The bottom line: we're still working hard to get on people's radar screens.  The overall environment here is positive though... there are a ton of us interested in--and gunning for--real estate careers.  In addition, most everyone is willing to help everybody else find that right opportunity (sharing contacts, putting people in touch with old clients/colleagues, etc.).  Just this last Friday I was sitting (in a commercial transactions class) next to a friend who sent me at least a half-dozen contacts he'd acquired during his time as a real estate analyst.  He hasn't landed his job yet, but he was still willing to take the time to dig through his rolodex for me.

Some of the best and most promising leads I'm chasing have come (and continue to come) from Owen and Vandy alumni.  Alum regularly give me upwards of an hour on the phone, and I've just met them!  I consistently receive feedback about their excitement that current students are looking to get into the industry.

The bottom-line: if real estate is all about location, location, location, the real estate internship is all about persistence, persistence, persistence.

Dix says:  "Persistence is not a character trait some are born with and some without; it's a decision some make and others do not."