The collapse of Brookstreet Securities and bailout of two Bear Stearns hedge funds have focused attention on collateralized mortgage obligations (CMOs). These recent CMO losses closely parallel CMO losses in 1994 when a significant increase in interest rates caused many bond mutual funds to fall in value far more than expected. Today’s CMO losses resulted from the relatively recent introduction of CMOs with substantial credit risk and the inadequate or misleading way in which that credit risk was disclosed. Dr. McCann provides a selective history and a brief description of CMOs.

Published in the Alternative Investment Analyst Review, 2014.

In this paper we provide a brief overview of the ways to achieve real estate exposure and focus our analysis on alternative real estate investments. The term alternative real estate investment, as used in this paper, refers to real estate securities such as non-traded Real Estate Investment Trusts (REITs), private REITs, and Tenants-in-Common (TICs), which are often sold to but may be unsuitable for most retail investors. Some common problems of alternative real estate investments are: 1) their illiquid nature allows them to give investors an illusory sense of low price volatility, 2) their high fees and significant conflicts of interests may lead to a loss of shareholder value, and 3) their reliance on leverage to fund current dividend payments may hide their inability to pay future dividends. Limitations on publicly-available data oblige us to concentrate much of our discussion on non-traded REITs. Our analysis is relevant for the even less transparent private placement REIT and TIC market.

At the request of the North American Securities Administrators Association, Dr. McCann authored a White Paper on equity-indexed annuities in support of the SEC’s proposal to provide federal investor protections to purchasers of equity-indexed annuities.

Dr. McCann concluded that:
– Existing equity-indexed annuities are too complex for investors to understand.
– This complexity is designed to allow the true costs to be hidden
– The high hidden costs in equity-indexed annuities are sufficient to pay extraordinary commissions to a sales force that is not disciplined by sales practice abuse deterrents found in the market for regulated securities.
– Unsophisticated investors will continue to be victimized by issuers of equity indexed annuities until truthful disclosure and the absence of sales practice abuses is assured.