Zuckerman Rips Bailout, Defends GM Building Buy

Mort Zuckerman, the chairman of Boston Properties whose months-long economic doomsdaying was vindicated this September with the demise of Wall Street, has put on his prognosticator of prognosticator hat yet again, this time in an appearance on Intelligent Investing with Steve Forbes.

Here are some excerpts from the conversation (you can find the whole transcript here):

First off, Mr. Zuckerman thinks the $700 billion bailout sucks:

I don’t believe that they should be doing it that way. I think they should be taking an equity position….Now, if [bankers, et.al.] can take up that much money on the way up they should take whatever the cost is on the way down. And it is not, it is absolutely a joke to say that their salaries are going to be constrained or their parachutes, golden parachutes, are going to be restricted.

Mort thinks John McCain blew a crazy good opportunity when he decided to support the bailout:

If John McCain had wanted to win the election, he could have sat there at that debate and said, ‘This is an outrage. We should not be bailing out the very people who got us into the trouble. If we do anything, we should buy equity into the companies so that we can participate and let the shareholders pay.’ If he had said that he would win the election.

Mort says the GM Building was a sweet deal, no matter what the critics say:

We were able to buy the General Motors building at a price that was roughly 20% below what it would have been the previous year. … We have a very long-term view of these kinds of assets. We’re at this stage, we bought that building with a minimum of a 5% yield that will go up every year. It’s not the greatest yield, but virtually every, there was a huge gap between the current rents and the market rents. A huge gap. And so as these things rollover over time it will yield to us, in our judgment, the highest internal rate of return of any acquisition we have ever made or probably ever will make. So we think that’s a wonderful asset.

The best financial lesson Mr. Zuckerman ever learned:

The one thing I have learned is: you can never predict these things with any degree of accuracy. So you have to be satisfied with what you can get. I was not only satisfied, as I said on the phone call with our investors, I was not only happy. I was very, very, very, very happy and I didn’t mind if I lost the top 2% on the price. It doesn’t– I don’t even think about it.

And finally, according to Mort, the recession is going to be a killer:

I think this, as you and I were talking before, I do think that credit constraints are going to put us into not just a recession but a longer recession than we have experienced since the end of World War II. It will not be a recession that will be over in six months or a year. Ken Rogoff, who’s a very good economist, studied 18 recessions. When those recessions, in Western-style economies, when those recessions began in their equivalent of Wall Street and then moved to Main Street, and then bounced back to Wall Street, those recessions were deeper and longer than the recession that started in Main Street and then affected Wall Street.

So that is what happened here. This recession really began with a bubble bursting in not just in housing–which is a financial matter–but in the financial world itself. It’s now going to seep much more directly into Main Street. We’re going to see much slower economic activity. It’s going to go on for a couple of years. I’ve been bearish, well, for 18 months. I gave an interview to the Financial Times when people thought I was so bearish that I was nuts. Well, I wasn’t bearish enough. I now say that the difference between an optimist and a pessimist is that an optimist thinks this is the best of all possible times and a pessimist fears he may be right.

Zuckerman Rips Bailout, Defends GM Building Buy