First, there is no way to k now ifEbola will really matter to the US economy or not. The incredibleincompetence shown by the Dallas hospital management, CDC, and theWhite House initially, does leave us all wondering if these peopleknow what they are doing, and it reemphasizes the inability of theWhite House to show early leadership. So what does Obama do-appoint a political spinmeister to head the effort. It is now clearthat the medical community woke up and it is highly unlikely therewill be any epidemic in the US, even though it is pretty clear tensof thousands may die in Africa. Maybe Obama will order a travel banafter the election since he clearly is treating a ban as a racialdiscrimination issue and not a health issue. The things to watchfor is if anyone on the Frontier flight, in that airport or thecleaning crew on the plan gets sick. If that happens then thetravel and hotel industry will get slammed. If nothing furtherhappens, maybe this will pass with no major impact. Problem is wedon't know, and fear is not controllable and appointing anunqualified political operative is not helping that.

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New Issue. While Ibelieve the Fed must remain independent of Congress or the WhiteHouse, it is now a situation where the Fed has moved well beyond itnormal powers and is disrupting the economy in ways we cannot yetknow for sure. It is far from clear that QE really mattered tostabilizing the economy. What it did do is inflate assert prices tounrealistic levels beyond where they otherwise would be if interestrates had been left to the market. What is also clear is that whilethere may have been some early boost to housing, it is likelynowhere near the impact of severely depressed prices and theforming of large funds by Blackstone, Colony and others to sweepsupply out of the market thereby driving up prices well beyondwhere they might be had these funds not been mass buyers. Betweenthe Fed and the funds, the housing market has been seriouslydistorted into one which is not real. Therefore, once mortgagequalifications rules were raised so much, and once the fundsdropped out of the market for the most part, buyers were not reallythere, prices began to stabilize and in some cases decline, andwere it not for building of multi, the housing market wouldotherwise now be in a weak state. So QE was really now what drovethe rebound in home prices and maybe it had little realimpact.

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As to stock prices, it is clearthey rose on the back of QE as did the value of other nonproductive assets. Many of my real estate industry friends tell methey are buyers of assets because how can you not buy when the costof debt capital is essentially nil. Once CMBS came back, and youcould borrow 65% or more at a 4 handle or less in many cases, howcould you not be a buyer while prices were depressed anddistressed. Now that the distressed game is close to over, andasset prices have been driven to excessive levels because of theFed forcing unrealistic low capital costs, the rise in values ismaybe near over, but is not realistic if one assumes a normalinterest rate market. So the Fed drove up real estate prices butthat did nothing for the general economy nor the middle class.Maybe middle class home owners feel better now that house pricesrise, but they can't monetize that value in any meaningful waybecause if they sell now they maybe have a small profit but thenthey need to buy another house. While home equity loans at B of Aexceed first mortgages, the proceeds in many cases is being used tofund college for the kids or to pay off other debt. It is not beingspent on consumer goods in most cases. The Fed and Congress imposedunrealistic qualification rules, and Eric Holder drove the bigbanks out of the market with political fines, so the big banks havelargely reduced mortgage lending on homes dramatically. So much sothat housing has suffered. Soagain, QE had nil impact, and whatever impact it did have wasundone by Holder demanding obscene fines from the big banks. It isinteresting to note that this week the feds decided that housingwas going nowhere so they suddenly decided to ease the regs onmortgages. It is not likely to matter a lot. Holder and overzealous politicians who did not understand the mortgage market,pushed by Elizabeth Warren, another uninformed zealot, destroyedany incentive by major mortgage lenders to jump back in.

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Now the Fed has a thing called theFinancial Stability Oversight Council. It is made up of allDemocratic regulators and has no Congressional oversight nor anypolitical balance. So its first move was to name several insurancecompanies as systemically important –too big to fail which tneallows the Fed and other government agents to physically move in toover regulate businesses that have always been highly regulated ina good way by the states. This will harm those companies and is nowbeing challenged by Met Life. AIG did not get in trouble frominsurance. Those subs had no issues. It was onlywhen Greenberg was driven out by Spitzer and the new management gotenamored of derivatives being traded in London. This new board isdangerous and takes the Fed into over regulation places it does notbelong. More over regulation is going to come from this hyperpartisan Council, and it will not be good for financial servicesmarkets, nor for real estate.

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The monetary policies of today arenot what Milton Friedman ever pushed, and they are creating afuture problem we are yet to fully understand. The Fed controls thedebt market and asset prices, and they have created a situationthat now has lots of people clamoring about inequality, when thatinequality was created by QE and super low rates. So instead ofdealing with the real issue the Fed and politicians created, we nowhave a new political buggieman called inequality which us rich guysnever had anything to do with creating, but which they will try totar us with and tax us for.

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In effect we now have four branchesof government-the normal three plus the Fed which seriously impactsall of the economy by using dictates that do not really work andkeeping the stock and bond markets, and real estate valued atunrealistic levels which in time will have to adjust when rates goback to being market set. We are living an illusion right now, andmost people in real estate have begun to believe this is a realmarket. That illusion will become clear when things reset to marketdriven rates and lending.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.