Mr. John Moran:

I think the component of volatility that really impacts, and it relates to both commercial and residential, is land. Land is exceptionally volatile in value and that is because it is open to so many various different interpretations. If there is a one-acre site, for example, and I think I can build 12 houses on that site, I know I can sell them for a certain amount. I know what it will cost to build them. I know what my services and financing costs will be. That tells me what I can afford to pay for the land. However, if somebody beside me thinks that he can build 50 apartments on it, he knows that the end value will be significantly higher. His construction costs may be slightly higher but he can afford to pay a lot more for it.

That pertains through commercial land as well. If I think on an office site I can build a 100,000 sq. ft. of offices to deal with a company of 700 or 800 people and the person beside me thinks he can build 200,000 sq. ft. of offices, different values will arise. That is where the real volatility around value arises. The other aspect of it is in a scenario where there were high loan-to-value ratios. The level of equity that was being put into the transactions was relatively low so when one is operating in a market where values fall by 70% to 75%, everybody's equity gets wiped and I think that is why we are in the situation that we are in where, obviously, loan levels then become unsustainable because the natural buffer that one would expect to be in a normal piece of lending was not adhered to.