This time is no different. We are headed into the same mistakesas last round. In the oft repeated scenario, lending is back forboth real estate and for commercial deals. Just as we did in 1993when I created the first hotel CMBS programs, we began with a toughset of underwriting criteria, we ignored appraisals as beingunrealistic, and we focused on who was the sponsor and what was thereal historic cash flow. No projections, no special adjustments, nonothing other than getting to true cash flow and debt cover of 1.5on trailing 12. Maximum loan was 60% initially of our valuation. Itrose to 65% by 1994.As we all know, and as we predicted at the timein late 1993, competition heats up, lenders want to fill thebucket, and the bonus pool awaits closings. In 1993 the tighterunderwriting lasted several years and only slowly mitigated untilby 2006 there was none at all, negative debt cover was allowed andpeople actually believed appraisals even though they were even morephony than in 1993 and during the S&L bonanza. Corporatelending was equally ramped up over the same period. Then we went toCDO's, CLO's, and finally to virtual loans in pools. Many of uswarned repeatedly in 2005 and on that covenant light was creating avery bad situation, and when things crashed the lenders would bevery sorry.

So here we are just seven years after the market began its slidein late July 2007, and crash in 2008, and what do we find. Covenantlight, CDO refreshed, CLO refreshed, What began this time as11%-12% debt yield, has slipped to below 9 already in some cases.Leverage levels can sometimes reach 70% again. Appraisals are backas phony as before. While sponsorship remains a key metric, thiswill eventually slip. There are probably few people remaining doingunderwriting who were around in 1993-94, and while some of thoseveterans may be in very senior positions now, they are not doingthe detail work.

Over time the pressure builds for volume-fill the pool, create abigger pool. Covenants light is already pervasive in real estateand corporate deals. The regulators can think they regulate, but Ihave watched over the years how over time, the rating agencies insearch of fees, become more flexible, the regulators have no cluewhat is going on so just issue dumb rules, and the beat goeson.