When I graduated from New York University in the early 1980s, interest rates on 10-year U.S. Treasuries approached 16% and I couldn’t find a job of any kind during a massive recession.
That’s how I landed at tiny Mercury Savings & Loan in Huntington Beach as its first-ever loan officer trainee.
My pay was $1,000 a month, which with inflation is $3,243/month today, or slightly below the $20 an hour that Starbucks baristas and other fast-food workers earn today in California. I had nowhere to go but up and with all the swagger of a 22-year-old, I was confident that I was on my way up.
At Mercury, I learned all about home mortgage lending, especially how subjective the appraisal process was and thus how vulnerable the industry was to a bad loan problem. I saw how incompetent management were being relied upon to invest insured deposits safely, and how risky that was for U.S. taxpayers.
The business was so small that I was invited to sit in at meetings of the board of directors, where I gained a crucial insight: regulators have a far bigger impact on this industry than the public realizes. Thus, these regulators affect not just the banks but also the entire financial industry and the economy.
I learned it’s a major systemic weakness because regulators are mostly inept. What aspiring finance executive dreams of a career working as a government regulator? Answer—NO ONE. The only ones in these jobs are those who are otherwise unemployable in the industry.
While my time at Mercury was at times frustrating and it eventually went bankrupt, living in OC was mostly joyful, especially for a native New Yorker. Of course, losing the cold winter was a blessing. I lived in Irvine when it was mostly barren land with just a few homes and the university. I rented a room in a home with three grad students, one of whom was a first-year med student who brought home the smell of formaldehyde from his cadaver lab.
I was blown away by my first tastes of Mexican food, which I remember was at the El Torito on Beach Boulevard, just off the 405. I can still recall the simple yet delightful taste of my first quesadilla with guacamole. In 1983, avocado and real Mexican food had not yet been introduced to the New York cuisine scene, at least not mine.
The Inside Secret
Through a combination of paying careful attention, learning, always doing more than what was asked of me, and never losing my dream of making it big, I made my way back to Wall Street just before my 25th birthday, becoming one of the first traders of mortgage loans and a pioneer of structured finance.
Within two years, I was recruited to Morgan Stanley to build and lead the firm’s new effort in mortgage trading and finance and became the youngest principal in the firm’s history. In that time, I dealt with many bond buyers, including the giants in Newport Beach—Pimco and PacLife, as well as many SoCal Savings & Loans. Some were real characters, including Russ and Becky Jedinak, who took down their Huntington Beach-based Guardian S&L and earned a lifetime ban from ever working at a U.S. banking institution.
They were the true forerunners of the subprime lending business that eerily proliferated in OC and nearly took down the global financial system in 2008. Of course, if we had competent bank regulators, there would not have been a financial crisis in 2008 at all, but that’s another story.
My time at Mercury had taught me to pay close attention to regulations.
In the early 1990s, U.S. financial regulators, scared by the Savings & Loans debacle of the late 1980s, decided the solution was to idiotically turn off the spigot of bank and insurance loan capital for income producing real estate.
The problem was that this massive industry—the most leveraged in America where roughly 20% of its loans come due for repayment/refinancing every year—had nowhere to go. Without access to loans, literally every single commercial property owner was facing foreclosure and possible bankruptcy.
Into this moment, at age 31, I emerged with the idea of accessing the bond market to solve this liquidity crisis. The result: I persuaded the world’s then-largest financial firm, Nomura Securities, to back me, and I built the largest and most successful real estate lender in U.S. history. In the process, I created a trillion-dollar financial industry—Commercial Mortgage-Backed Securities, or CMBS, and gained permanent legendary status in the worlds of finance and real estate.
My connection to OC continued through my time with Nomura, when I was the nation’s largest real estate financier. I was blessed to know the legendary Dons—Koll and Bren. I did great business with Pimco, mostly with the equally legendary Bill Powers, who guided them through much of their explosive growth. And I would be completely delinquent in not mentioning Koll’s president, James “Watty” Watson, who today runs CT Real Estate, among the nation’s dominant and most creative industrial developers.
A Run for Governor
Today, after more than 40 years in finance and real estate, I’ve decided to make a serious run at becoming California’s next governor as an independent.
While politics has little appeal for me, and public renown even less, I cannot sit by idly and do nothing while completely incompetent career politicians, with nothing in their background to suggest even a hint of relevant experience to running a business as large and complex as the state, do nothing and allow our beautiful California to continue to slide into the abyss.
We may have the world’s 4th largest economy, but what these buffoons won’t tell you is that we are dead last of 50 states in poverty, homelessness, unemployment and affordability. Youth are living with their parents at a rate that is almost double the national average, as our anti-business policies have driven businesses and entrepreneurs to Texas, Nevada and Florida at record rates. It should be no surprise that California has also been dead last for five straight years in net migration.
My primary objectives as Governor will be to restore the amazing quality of life that California offered for so long but has been lost in the past twenty years, and to return to California’s youth the same American Dream of social mobility that catapulted me and so many of my generation benefited from.
I have loved California since first touching it in 1970, when visiting my dad who moved to San Diego after my parents’ divorce. I’ve lived all over the state—San Diego, OC, LA and the Bay Area—and love every part.
I have decided that I have the ideal background and energy to help Californians and that at age 64 and having raised five kids and with the strength of an amazing marriage, I will now devote myself to serving the public good.
Editor’s Note: Ethan Penner, who wrote this Leader Board for the Business Journal, is still active in OC business circles, such as financing an 88-unit active adult apartment community in Midway City. The primary for California’s governor’s race is scheduled for next June.
