NEW YORK — When financial panic sweeps Bedford Falls in the 1946 movie "It’s a Wonderful Life,” the villain, Mr. Potter, moves to snap up the Bailey Bros. Building and Loan, offering a fire-sale price of 50 cents on the dollar.
"I may lose a fortune,” Potter says with a smirk. The picture’s hero, George Bailey, knows better. "He’s picking up some bargains,” he tells stockholders. That kind of bold opportunism has made capitalists rich for centuries. Now, legions of like-minded bargain-hunters stand ready to do some Potter-style shopping of their own amid the nation’s financial crisis. "Vulture” investors, as they are called, have raised tens of billions of dollars over the past year in anticipation of opportunities to scavenge distressed assets and debt at discounted prices.
Why they hold offSpeculators are eyeing potential profits in many of the same areas now at the center for the financial mess: real estate in foreclosure-plagued Florida, high-yield commercial paper, and pools of questionable mortgages. "These people have been waiting for the bottom to be reached before they plunge in, and then they take the risk of having the price drop even more,” said Roy Smith, a finance professor at New York University. The vultures have been skittish for another reason: The poorly performing mortgages at the root of the crisis were repackaged, resold, sliced apart and pooled together in so many complicated ways that even the best-trained experts have trouble understanding their value.
18 ready to pounce"There are investors who have pools of loans, and they don’t know where the assets are,” said Harvey Green, chief executive and president of Marcus & Millichap, a large commercial real estate investment brokerage based in Los Angeles. Some of these factors might begin to change in the coming months as the federal government begins trying to stimulate the credit markets with its $700 billion bailout. If it works, the private sector may be ready to pounce.