Buying in the USA

[muppet]

Hi Guys

Quiggles on Somersoft has been in the USA buying property. He has started a strand detailing the trials and tribulations he went through to buy investment properties.
His story has attracted alot of attention and admiration.

I have liberated his story on PT. Here it is. Happy reading.

Buying in the US, the first of a series. Folks, this is supposed to be educative rather than a look-at-me, ain’t-I-good. I’m therefore trying to set down my warts and all experiences for those interested which is going to take a fair bit of effort and a whole series of long emails.

While I write these, I may not have time to answer questions (I haven’t settled my properties yet and am still running negotiations far into the night), but post them anyway and I will get back to it.

I’d searched for a year and a half and had found nothing that met my definitions of acceptable cashflow – the property had to return at least 3% over the prevailing interest rate and council rates had to be well below 20% of gross rent.

I’d looked at commercial, I’d looked at Broken Hill and I’d looked at New Zealand (I think other forumites rather beat me to the punch there). So I looked at the US. At the same time I was reading up all I could and the Robert Kiyosaki ‘success stories’ book was a bit of an inspiration.

So I looked at the US. I searched the forum here for tips – Jeremy Laws had done stuff with some success in the old old forum, but I couldn’t locate him so I spent about 3 months searching the net every night for about 3 to 4 hours trying to find good real estate deals.

The best US site for cashflow assessment that I’ve found was http://www.loopnet.com which gave net operating income (NOI) which usually meant rent plus late fees less vacancy, maintenance, property taxes and other expenses. You need to know who is paying the utilities to do a proper assessment and many land agents won’t talk to you unless you are making a cash offer or are prequalified by a US bank. More on credit later, but if you’re planning to rush out and buy, and assume that you are going to easily get finance, don’t. Just don’t.

Loopnet also allows you to search by cap rate which usually is calculated as NOI/purchase price – ie. Cap rate of 15% on a $100,000 house would mean $15,000 income before debt servicing and taxes.

At the start, I made a few offers – some vendors didn’t respond to emails at all and others wouldn’t touch unqualified offers (btw, I had about $250,000 to spend and was willing to leverage to whatever hilt I could find.) Finally I struck it lucky in Florida – a block of 20 units for $800,000 and a 14% cap rate. After adjusting a few figures for reality, it looked closer to about 12.7% but that was pretty good.

Then the bank started hesitating – I was a foreigner (but not a South American, to whom they specialise in lending), the property was in North, rather than South Florida (their area of expertise), it was my first US property (well, of course it was – everyone has to have a first) etc.

Then the vendor said that the original purchaser had come back – some kid from California who had missed the deadline to buy but stood to drop $20,000 if the deal didn’t go through in already-incurred expenses. Seeing I had finance difficulties, and out of sympathy, I agreed to let this one go.
One of the lessons I learned though, was that the US vendors expect you to sign a contract specifying the price before starting negotiations on conditions etc. They also want a down payment. That casued a few confused emails before we straightened it out, but the deal fell apart before I needed to send money.

Side note: A week after the deal fell through, thanks largely to the bank, Hurricane Charlie, (followed by Francis and Ivan) all made landfall in South Florida, the bank's preferred area. Ivan made it north, but not to Jacksonville except as a reasonably heavy storm.

So I looked a bit further and I noticed that very high returns were available in Buffalo, NY. (As well as a number of other places whose agents weren’t into returning emails.)

End of Part 1

Regards

[muppet]

Hi Guys

Here is Part Two of Quiggles great story.

So having spent July to Mid August not buying in Florida, my attention moved to Buffalo and I researched it.

It’s a conurbation of half a million to a million made up of a number of distinct cities. Web research showed deals that couldn’t be true, like a fourplex for $8,000. I looked some more and discovered there were some pretty bad areas of town, especially in the inner east and to a lesser extent the inner west side. It’s a steel town and a manufacturing area with a big Chevy plant. None of these are good economic prospects, so the area is going through a localised depression/recession. NY is a high taxing state, which doesn’t help and my impression was that the locals couldn’t raise their eyes beyond the city limits except to dream of escape.

I found a property on sale for $84,000 and whose agent was willing to talk. I searched for a lawyer on the web looking for one who specialised in real estate and who was located in Buffalo. After some initial misunderstandings we got things going – she suggested I get a realtor of my own and that the other realtor would have to split the fee. I didn’t take up the suggestion, but I did find a building inspector.

The email traffic moved into top gear when I got a 60 page building inspection. The length was because the property was two buildings, one with three apartments and one with one. We argued about the price and it ended up as follows: $77,000 purchase price, closing costs paid by the vendor, $1000 in escrow from him in case the furnaces (for heating) packed up in the near term, $19,200 in annual rentals and about $7,000 in annual expenses before debt repayment and taxes. This wasn’t looking too shabby! All I needed was a 4.5% loan with an 80% LVR and I would really be on my way, if I could find a supply of these.

I was buying cash but tried to get finance on the web – no real luck and just about everywhere I went wanted my social security number on a automated form – sometimes the form collapsed when I tried to put in my telephone number.

My vehicle for buying was a limited liability company registered in Nevada. This was done for asset protection and tax reasons – it pretty much operates like a trust in Australia. If you’re interested, read Kiyosaki, the ATO website regarding foreign hybrids, the IRS website and you’ll get a good grounding.

Closing the contract was a mess because the vendor was trying to leave town – he was retiring – but was too cheap to hire a lawyer to finish the job when he was a lawyer himself. Negotiations started in mid August and the contract closed on 30 September – we were now international.

By that stage my wife and I had decided the US was the land of opportunity and I had booked a ticket for Buffalo – a 30 hour plane ride. I had drawn together a list of properties and had asked realtors to investigate them and get back to me – only two did, and one immediately dropped out when he found I was talking to someone else as well. So I arrived in town knowing the name of my attorney, my realtor and one potential accountant.

The plan was to set up a team to have things operate smoothly and perhaps get some other bargains. I needed an insurer, a property manager and a financier to begin with.

It was early October when I landed for two of the wildest weeks of my investing career.

I had the usual travellers tales of airport oddities and cultural dislocations but nothing to worry about. I had the devil’s own time getting a SIM card for my phone when I got there but eventually was driving, was connected and all was going well. I met my realtor and she started showing me the lower west side of Buffalo. I was very aware she was scoping me out and checking my reactions to see what I was looking for, what I found acceptable (or not) etc. She had a thoroughly prepared portfolio of properties and we started going through them. All were multifamily (as I had specified), most were duplexes and all were under $50,000. That had been bit of a misunderstanding but it was hard to search the multilist by returns (unlike loopnet, but most of these weren’t on loopnet).

End of Part 2

Regards

[muppet]

Hi Guys

Buying in the US, part 3.

I met my realtor and we drove out to the lower west side. This was a poorer area, mixed race, but not actually in what I came to call the war zones. We looked at a wide range of houses, some with dog leavings on the floors, others with holes in the walls or graffiti in the bathrooms. I made it clear I was not up for a long distance renovation (“rehab”) and that we had no intention to become slumlords.

There were some good properties mixed in as well and we drove past quite a few. We also looked at Riverside, a slightly better off area next to the river. The river is largely docklands and not much has water views. The houses are built with a stone walled basement, usually a ground floor apartment, a second floor apartment and an attic. Every 25 years or so, you have to peel off the roof and replace it (known as a complete tear off). The you lay down a new roof, and over the years, either patch it or put a new layer down. You can get away with about three layers, then it’s tear off time again. (Guess how old most of these roofs were?).

Over the next few days we decided we would not go with the lower west side (doubtless there are bargains there, but getting the rent could prove tricky). The realtor wasn’t allowed to steer me away from areas, but she did say there were some where she would prefer to find an off-duty cop to accompany us (just to show the house, not to collect money) and I decided that perhaps I wouldn’t bother with any such area. We put offers in on 5 houses – pretty aggressive offers, actually.

There were two reasons – I was buying cash, and that in itself gets a BIG discount – lots of people making finance dependent offers find their finance falls through. Plus it was definitely a buyers market – some properties had been on the market for 6 months or more. I looked at what the rents were, annualised the figure and made an offer that equated to gross rental returns of 30%. E.g. if both flats were getting $400 per month, that’s $9,600 per year so my offer would be $9600/0.3 = $32,000. I didn’t actually take much notice of what was being asked, but it was usually in the range of $35,000 to $60,000 with rents ranging from $275-$450 per month. Generally speaking my offers were between 50 to 80-per cent of list price.

As I had learnt, you are supposed to make the first offer by way of written contract but the realtor had gotten into my game and decided it was better to ring the ‘opposing’ realtor, let them know what was coming and not to be offended – it was an investor making business decisions and emotion did not come into it.

So the offers I made were:

House 1 Asking 37,000 offered 27,000 result did not reply before I had spent my funds - withdrew offer.
House 2 Asking 46,000 offered 23,000 result no reply - agent did not get around to presenting offer
House 3 Asking 46,000 offered 27,000 result refused - lower than existing mortgage
House 4 Asking 39,000 offered 27,000 result sold to someone else
House 5 Asking 45,000 offered 40,000 result accepted - this one broke my 30% rule but the entire place had been redone apart from the roof and the tenants were brilliant as well.

(Results summarised here but they took days to come in, so I was progressing with properties "in play" in my mind. Also, my notebook is being typed up at the moment so some of these figures are from recollection - not house 5 however.)

By the way, I wasn’t paying the realtor, but she was acting as a buyer’s agent. The way it works in NY is that my realtor splits the fee with the listing agent but contracts to act as the buyers agent. The only time this breaks down is when the listing agent comes from the same agency. Then vendor and seller have to agree that the agents are ‘dual agents’. As a result, when I was interviewing property managers, she wanted to steer me away from ones who worked for a real estate sales firm in case she ‘lost’ me. Nice to be loved, I suppose. She was very upfront about it.

We took a day off while I interviewed accountants and found a good one and I began to interview property managers with a whole list of questions, looking for a people person who understood the ins and outs of the local legal system and could present the right mix of firmness and understanding. The realtor was researching Tonawanda (North buffalo) and other areas.

In the meantime, my LLC had omitted to file a form (I had not understood a requirement) and was not in good standing so it couldn’t trade in New York. I had to call Nebraska and find out how to fix it, paid a fortune in expedition fees only to find out later that they would only mail, not fax my certificate. Money wasted and another delay.

I also finally found out where my existing property was, visited it and spoke to the tenants. They called me the next day to say there was a letter about school tax and that the water was about to be shut off – the vendor told the water board about the change of ownership but hadn’t given them any contact details for me or my attorney, and had ignored the tax bills. School tax of about $2000 was due in 2 days time with a 7% late fee. Sheesh. I called the water, changed it over to my name and authorised payment of the account. I visited the school tax area, met some really helpful local government people, paid my money and left.

I was beginning to get a bit ragged, and feeling somewhat out of control.

End of part 3

Regards

[muppet]

Hi Guys

Quiggles had to clarify some of the things that were happening. Read on.

Two clarifications:

1. School tax is a tax levied on property by the local city. It is not the only property tax. You have village, town or city tax, state tax and school tax.

2. I have my note book back, the house figures were

House 1: asked 45k, offered 32k, countered 40k I offered 35k no further result.
House 2: asked 46k, offered 29 k, land agent never got around to presenting offer to client.
House 3: asked 46k, offered 25k, refused, had a 38k mortgage
House 4: asked 35k, offered 25k, sold to another investor
House 5: asked 45k, offered 40k, agreed.

Regards

[muppet]

Hi Guys

Buying in the US, part 4.

My realtor called and said that I should try Niagara Falls. Niagara Fallls is a twin city, bustling and thriving on the Canadian side and Struggletown on the US side. Their fortunes used to be the other way around before decades of mismanagement, corruption and nepotism took their toll (or so I was told). Higher rents and lower prices than Buffalo, with about the same vacancy rate, plus the PM I was appointing lived there.

It was a small neat town, maybe 200,000, maybe less with a wide variety of quality of housing. The realtor didn’t know the are either, but there were no war zones per se. There were some areas we marked off the map as fairly bad, but we started to look. Jackpot first time! A 5 family building on a road that was being completely reconstructed (good sign), with up to date electrics and heating. I was a bit concerned about the flooring in some of the bathrooms, and said so, but decided to leave it for the building inspector. Asking price was $75,000 (less than I had paid for the 4 unit I already owned).

We covered many more in the that day and the next – a house where the owner was dead or in nursing home and the daughters were going to garage sale the house belongings (including fridges and stoves by the way – in NY the land lord generally provides both and they aren’t fixtures – they don’t necessarily come with the house). There were several older people who were moving south and who didn’t want to manage their properties any more, some selling for no apparent reason, one scum slumlord trying to flog horrible properties at inflated prices, a beautiful brick place that was in perfect nick etc.

My poker face must have been in play as the realtor said, well if you didn’t think much of those we can try again. She was pleasantly surprised when I pulled out the list and started to go through it.

It read as follows

House 1 (5 unit) asking 75k, offered 65k, agreed at 67.5k
House 2 asking 50k, offered 40k, agreed – a bit above the 30% rule but again in very good condition.
House 3 asking 29k, offered 20k (aggressive offer, unwilling owner), another investor offered 25k subject to finance, I offered 25k cash, agreed
House 4 asking 25 k, offered 19k (unwilling owner), agreed at 21k
House 5 asking 50k, offered 20k (I wasn’t that interested), finally settled at 30k
House 6 asking 43k, offered 32k settled at 34k
House 7 asking 50k, offered 30k, agreed (to my realtor’s great surprise).
House 8 asking 47k, offered 30k, no response from vendor’s agent
House 9 asking 50 k, offered 30k, countered at 38k, I haven’t pursued
House 10 asking 40k, offered 33k, vendor refused to negotiate.
House 11 asking 39k, offered 27k, this property still under negotiation.

So there I was sitting with hundreds of thousands of US dollars in bids (on contracts!) hanging around. After agreeing to a number of them as listed above I pulled out from the rest, including House 11, citing my 5 day rule for the bid (agreement in 5 days or I walked away from the offer).

I was already arranging a significant transfer of funds to the attorney to pay for the house inspections – the inspector thought all his Christmases had come at once so I negotiated a 20% price cut.

Next on my list was to arrange finance, arrange insurance and straighten out my LLC structures – I hadn’t planned on buying half the USA when I came, but that was what it felt like.

End of Part 4

Regards

[muppet]

Hi Guys

Buying in the US, part 5.

From here, things started to get rocky. It was about Monday, my plane was scheduled to fly out out early Friday, the property I owned still wasn’t insured, and no bank I spoke to would deal with me if I didn’t have a social security number. You need the SS# for just about everything there – I even saw a video game in a pub that required you to enter your SS# and promised dire consequences if you used someone else’s.

Many banks wouldn’t lend against investment properties at all. Others wouldn’t lend to an LLC. Others wouldn’t lend to foreign corporations. I reminded myself of the Jan Somers story of the people who tried bank after bank, to find the right one. I was a bit depressed, however – I certainly hadn’t found anyone on the net who was willing to lend. To complicate matters, I was told that I had a chance on 2-4 unit buildings, but 5 unit buildings were right out, and did I know that they had extra regulatory requirements and extra taxes?

Insurance brokers were just as bad. They would agree, quote a good price and then ring up and say that they didn’t do investment properties/properties owned by corporations/properties owned by foreigners/whatever. In short, if it was mine, they wouldn’t touch it.

I was getting a little desperate, especially regarding the insurance. I mentioned it to my attorney who put me onto her sister, an insurance broker. Bingo! I got my existing property covered and the others won’t be a problem. She couldn’t help with the 5-unit, or at least that was going to prove a problem. The insurance was expensive, but letting $100,000 of house (or $19,000 of income) burn to the ground uninsured would have been more so.

That took pretty much a day and a half and meanwhile I was frantically running around setting up check accounts for the LLC, a bank account in my name, and other matters. I couldn’t actually set up the company account (remember my LLC was not ‘in good standing’?) therefore couldn’t trade in NY therefore couldn’t have a bank account until all the papers (which would arrive after I had left) were approved.

In the end I agreed with the banker that the attorney would contact him with the papers when they arrived, and that the account would then be set up. I signed powers of attorney for my lawyer to close all the contracts for me and to handle just about everything else. I had a long discussion with the accountant about strategy, depreciation, structures and the rest.

I arranged with the attorney that I would send her a big swag of money which she would put into her trust account and cut checks for the properties and the inspector as required. I couldn't find out what the $A/$us rate was at that stage and I was sweating that particular equation.

I finally got onto a broker who would be able to finance me at 4.5% for 65% LVR (although not on the 5 unit and probably not on the 4 unit I already owned.) He would have financed a purchase to 80%, but refinances where you are pulling cash out are treated rather differently – this was consistent with what I’d researched on the net so I was disappointed, but not surprised. And the cash offers had really reduced the prices I was paying. Still the figures were looking pretty good, although the 5 unit was looking dicier all the time.

Friday came, and there I was at the airport. I owned one property in the US, I had agreed to buy 8 more (total commitment US$363,500), I had finance in train, I had insurance settled and I was ready to go home.

I phoned the lawyer, the realtor, the accountant and the PM and left messages for all of them.

End of Part 5

The next parts, which have a lot more of the warts will have to wait for me to regain my notebook, which is being typed up for me (and for the IRS, in case they ever come calling). I'm now open to questions, and don't mind getting ahead of the story. Don't expect a razor sharp recollection of any figures which for the moment are still only in the notebook. I can't emphasise enough how disorienting an experience this was.

Regards

[muppet]

Hi Guys

Buying in the US, part 6.

So I got on the plane (or a series of them, interrupted by 3 hour stopovers in airports). By the time I’d gotten onto the San Fran – Sydney flight I was into a full scale panic attack. WHAT HAD I DONE? I’d probably contractually committed $50,000 more than we owned, it was all going to fall to pieces, I was doomed…these emotions were so unfamiliar to me that for a while I was quite lost.

In the end, I wrote down a list of what was worrying me and why:

I was
• overexcited by the properties
• worried by those that I bought unlet
• worried that I’d spent too much and that I should have driven harder bargains
• worried what would happen if it “all went wrong” – property in Buffalo is illiquid even compared to normal real estate.
• Short on sleep
• Worried that I might have messed up
• Worried that we should have concentrated on cap growth for a few more years before moving to focus on cash flow
• Worried about putting so much trust in relative strangers.

Then I wrote down how to deal with it

• We were experienced in remote control property management.
• I trusted my attorney, and the realtor knew that I intended to be ‘repeat business’, and the PM needs my continued patronage to draw a paycheque. The accountant came recommended, so it really wasn’t so much a case of strangers – they had qualities I wanted, and reasons to align themselves to my interests
• As for not driving harder bargains, the realtor had almost been apologising for some of my more derisory offers – I was just getting greedy
• I had spent too much, but there were ways out, the building inspections hadn’t come in yet and may others would be interested in JVing. The correct question was not could I afford it, but how could I afford it?
• I don’t sleep well on planes, and there wasn’t much going to change but I had to recognise the effects of a stressful fortnight and temper my reactions.
• Most of the properties were already let and a lot would have to go wrong before I was forced to liquidate
• Maybe I had messed up in some areas – get over it! I’m not perfect.
• Going for cap growth is gambling in our general philosophy, at least in the short term. Also, our experience is that properties offering huge yields now are later viewed as undervalued, and go through big cap growth spurts – wee may get our cake and eat it too.

Eventually I calmed down. I made it home in one piece and started to organise myself for the long distance closing process.

End of Part 6

Regards

[muppet]

Hi Guys

Buying in the US part 8 (final part).

This was all about education, as I said at the start.

I hope a lot of what I’ve written will be useful, but equally I’d have to write War & Peace to really cover everything that happened. There is so much that is truly alien because it is sooo similar, but different underneath.

This applies to the people, the culture, the tax rules, the property rules and everything else. You can accept Kiyosaki’s statement that when people say “You can’t do that here!”, they usually don’t know what they’re talking about. At the same time, it might be true that you can do it they way you’ve always done it at home.

For those who would invest overseas, advice and home truths:

It really does require getting over there and getting your hands dirty. Had I done so in the first place, I may not have bought the four unit property and might have actually done somewhat better for myself. On the other hand, having the property gave me the confidence to try for more.

Don’t panic, and don’t get greedy. Deals need to be examined for costs – in theUS the property costs are significant, far more so than in many markets in Australia.

Look for opportunities, make your own assessments of areas, but also talk to the locals. Find out the pitfalls and look out for war zones and other areas that have unwelcome characteristics that would be unfamiliar to the bulk of Australian investors. For example, Buffalo has the ‘lake effect’ – an unusual weather pattern that in winter can result in a four foot snow dump from a combination of cold winds and Lake Erie acting as a heat sink. Roofing is important and an ongoing cost.

Ask yourself what makes the area you are considering both better and worse than other areas. The answer will be a combination of your priorities, investment philosophy, market beliefs, market facts and risk tolerance, to name a few factors. I’d anticipate that most people would have different answers even if they chose the same areas in the end.

If you have a partner they need to be totally involved when you try this step. A lack of agreement, support or understanding could be disastrous.

Ask yourself if you really want the extra level of hassle. Can you deal with the foreign currency exposure before refinancing into $US? See Jeremy’s post above, bemoaning the rising $A which is reducing his effective rental income. Have you got the self-confidence to push through the inevitable difficulties and misunderstandings?
Have you tried long distance renting in Australia before? (That gives out a few lessons in handling agents, tenants and trades.)

Use contacts, spread your network and educate yourself. We did this as much as possible beforehand. Try and prequalify the team that you will set up. Search for specialists and accept that you are going to pay for quality. Be aware that paying does not guarantee quality, however – the PM I selected turned out to be the cheapest but that certainly didn’t get him the job. I have since had some indications that he is a genuine go-getter, solving problems before I hear about them.

And ask me. I’m a novice and a newbie and none of my advice is guaranteed. All the usual disclaimers apply. But if you are energetic and enthusiastic, I’d be happy to help however I can.

Here endeth the lesson.

Happy investing, wherever and however you choose to do it.

Regards

[muppet]

Hi Guys

This was a fascinating read about how quiggles went about buying his properties in the USA.

There were quite a few questions, comments and replies to the questions.

Read them at http://www.somersoft.com/forums/show...ge=1&pp=15

Regards

[Roger_2004]

Thanx Muppet!

Good read!

[donna]

I was interested to see what some American realtors thought of this story. Here's some thoughts...

http://www.realestatewebmasters.com/thread988.html

Sarah

[muppet]

Hi Guys

More from Quiggles at this site:

http://www.somersoft.com/forums/showthread.php?t=18255

Regards

[drelly]

What happened to part 7?

[Gatekeeper]

I'm not sure I would want my investments in US dollars at the moment
or hold a mortgage in the US.

But interesting spiel none-the-less

[Gatekeeper]

Just got this in the mailbox:

Economic "Armageddon" Predicted

By Brett Arends/ On State Street
Tuesday, November 23, 2004

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic "Armageddon."

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, "it struck me how extreme he was - much more, it seemed to me, than in public."

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that "we'll muddle through for a while and delay the eventual Armageddon."

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of "Armageddon," maybe, than of a "Perfect Storm."

Roach marshaled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a "spectacular wave of bankruptcies" is possible.

Smart people downtown agree with much of the analysis. It is undeniable that America is living in a "debt bubble" of record proportions.

But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves "real" values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.