27 Nov 09 The “Commercial Tsunami”, Film at 11:00…
Commercial Real Estate Collapse – The next wave
We have seen the “Residential Mortgage Crisis. The ensuing foreclosure rampage was the precursor of the Government bailout frenzy, the Stimulus that didn’t stimulate and barrels of Pork encased in the Obama Administration’s first budget. In response to the feeble attempts at fixes, unemployment has now reached 11.2% in Florida, higher elsewhere, and is expected to soar higher by all those that aren’t hypnotized by Obama’s smooth delivery.
The unemployment situation has brought the commercial real estate market right to the brink. As you see in the clip, values have plummeted. The real rub is in the structure of these big commercial deals. Where residential financing usually comes with a calendar of 15 to 30 years for repayment of principal; commercial deal frequently have very short term balloon payment requirements. The deals vary to be sure, but it is very unusual for a commercial loan to extend beyond 5 to 7 years (the payment may be figured, amortized over 15 or 20 years, but the balance becomes due and payable very early compared to residential loans). This means the excesses of the post 9/11 real estate run-up are all going to be coming due right in the middle of the worst recession in modern times.
To make matters worse the “Backers” of these loans are the REIT’s (real estate investment trusts); these are the institution of enormous size that pensions and other funds invest in liberally.
There is going to be another “Shoe Dropping” and it is going to be a big one! The current Administration’s answers of inflated job numbers and Pork called Stimulus will not cut it. There will be only one answer to stimulate and that is an answer the likes of which Pelosi and Reid will find repulsive. You see, the only answer will be to stop spending and cut taxes. They will comply because they will have no choice. If unemployment hits 15%, there could be riots in the streets.
It is as Moses said unto Pharaoh, “There will be a cry so loud, that you will surely let my people go.”
I sincerely hope it does not come to that…
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09 Nov 08 What was important a few months ago, seems to disappear!
Do you remember $4.79 a gallon for premium?
It is as if the energy crisis (which contributed to the current financial debacle tremendously) has faded away on the Wind!
A few short months ago you couldn’t give away the eight cylinder truck and now the $2.50 a gallon price at the pump has all but erased the conversations of smart cars, and alternative fuel sources.
“CEO’s Parachutes” have replaced “Drill baby Drill”, and “Bailout” has glossed over “Solar”…
Know this; “The discussions of the past will be revisited upon us!”
The current drop in oil price is the result of the previous run-up’s devastation of the Western Economies. Our Arab friends (I tell the darn truth as I see it) screwed the entire free world so severely that the financial mess we find ourselves in was worsened significantly. To be sure, there were morgtage issues and a real estate bubble; but make no mistake the greedy Sultans and Princes of Arabia (along with our friends like Hugo, and Vladimere) made it much worse!
This would be a good thing to remember while the gallon’s price is under $3.00; this would be a good time to start wind, solar and nuclear programs all over America!
Don’t wait for the enemies of the United States to decide that we can take another “Royal Screwing”. Demand the Government undetake meaningful energy strategy right now.
We need to see windmills all over the plains.
We need to see wave power generators by the shore.
We need collectors on all of the roofs.
Don’t let them do it to us again!
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27 Oct 08 Be “Cool” in this economy, not fast!
The answer for survival right now isn’t fast movement of assets from one area to another. The circumstances that we find ourselves in are very emotional. Fear and apprehension abound. The news is nothing but waves of crisis. The election ratchets it all up to an even higher overall pitch.
The best thing you can do for your financial (and emotional) well being is to be “Cool”. It is easier said than done, but you can do it. Think back to immediately after 9/11. That’s what we were in this Country. We were shocked and fearful; but we went about our business in a clam and collected manner. It was really quite amazing in retrospect. Well that same veneer of placid confidence is what is called for now.
Don’t rush to buy, don’t rush to sell, don’t shave your head… One foot in front of the other, put your shades on and be aware!
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02 Oct 08 Where did the largest part of this financial disaster start?
The problem has now grown like an unattended infection; but if you want to see the root of the problem you have to look at some pretty significant history:
Jimmy Carter in the late seventies approved the CRA, (the Community Reinvestment Act). While being of “Good Intention” this was and is the start of the problem.
It sent artificial stimuli’s to the lending industry, not based on sound economics, but on social work (which as I have said many times is not a bad thing but should have stayed in its own arena, not banking).
FNMA and FHLMC got the message; “Make loans in minority communities”.
Bill Clinton rewrote the rules. He, Clinton, by this action turned the two secondary market players FNMA and FHLMC into the half government half private giants that we are seeing in trouble today.
The rule changes were the “planted seeds” of this crash. For the record, I think the intent was good. It’s just that rarely does good come of playing with the free flow of the free enterprise system.
Bill Clinton’s National Homeownership Strategy, widened Carter’s original Act in ways that were never proposed in the beginning.
Robert Rubin, Clinton’s guy, rewrote the rules in 1995…
Lender’s now actually had quotas, diversity numbers relating to their portfolio. If you were a bank that wanted to grow, you needed a good number or your merger with other banks would be made more difficult.
Lenders were actually making loans based on racial make-up of the area they were lending in, due to the rewrite of the rules.
There were many that warned again, some from the Manhattan Institute and others; all were ignored.
Bill Clinton’s HUD secretary, Andrew Cuomo was another factor between 97 and 01, pushing the banks even harder in this direction.
There were rule changes that allowed FNMA & FHLMC to have a reserve of 2.5% while it was the norm for 10% reserves for the banking industry.
The No Loan became the rage: no documents, no income verification…
In 07 FNMA and FHLMC were the damn behind a wall of poorly under written loans to the tune of around 50% of all loans made (on housing).
To make matters worst the two giants, FNMA and FHLMC were the safe haven for all of the Clinton friends that needed a job. It was studied and shown that the workforce at the two giants was better than 2 to 1 Dem. To Rep.
They had no shame. There were campaign donations to well over 300 different politicians, there were lobbying firms, and questionable donations to radical local groups; total of these activities was almost a quarter of a billion dollars (remember this was done with low interest rate loans backed by the US taxpayer)…
Was it a good idea; well if you wanted to give the poor homes it was a great idea. Almost half of new homeowners in between 95 and 05 were members of a minority.
That was the good news, the bad news was at the first sign of a slow down, there was no ability to pay and no equity to hold people in place and it started to crumble.
No, if you want to but the blame for this on someone, you need to look at those that had a hand in the above during the Bill Clinton presidency…
Banking cannot be slanted to do social engineering, there must be other programs for that.
The only reason I am posting this is I have grandchildren, and I would like for this to be a lesson learned, not to be repeated.
Just my thoughts, after reading as much as I could, having lived and worked through it…
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23 Sep 08 What the “Bailout Lovers” just don’t get!
Here is the main point that seems to escape Mr. Paulson, and a few hundred other key players in this Bailout situation:
The real estate in the United States (for a lot of reasons, but in my opinion, mostly poor lending practice and almost zero enforcement of regulations) is over valued, over borrowed and in a state of over supply, period!
The Bailout is as I have written before, “Taking out the garbage”. It is not eliminating the source of the garbage. A better way to go would to have let the chips fall where they may, let the big guys drown, and make whole every depositor in the FDIC FSLIC institutions with the almost trillion dollars of tax dough.
Why? Because those were the rules when the game started! If you put your money into the bank for savings, the Government assured you it was safe! There was no such promise for stockholders, and real estate speculators.
I lost a small fortune in the market in the post 9/11 drop, nobody made it OK for me!…
This is political BS pure and simple. The dire threats and scare tactics used to justify this Bailout are sinful! Do you really think that the real estate market will now miraculously turn around? Do you think there is now less risk in owning financial stocks? Or for that matter any other type of stock?
They threw over $700,000,000,000 of taxpayer money into the hands of the folks that bet and guessed and stole and mismanaged; and I for one am very angry about it. They haven’t fixed anything, at best they have simply given aid to a very select few; at worst they doled out the money based on connections…
Three to seven years to work through (look at the bailouts and legislative fixes of the past like the one in the early 30’s following the crash of Oct.29th 1929. Things didn’t get stable for years…)
Just my thoughts
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10 Sep 08 Lehman Brothers Too?, Bear Stearn’s, Fannie, Freddie, Whose next!
Lehman Brothers andother Wall Street Banker is in trouble. Tuesday saw the firm lose about 45% of its value in trading surrounded by rumors that they were going under…
Commercial and residential holding’s poor performance was sighted as the main trouble.
Lehman Brothers isn’t as large as FNMA or FHLMC; those two giants represent a larger combined potential loss than has ever been recorded… but what is troubling is Lehman Brothers has, prior to this, survived it all!
The firm is over 150 years old! They had toughed it out during a lot of rough cycles. But this isn’t just a wave of trouble, this is as I have been writing about for over a year, “The Perfect Storm”.
I am more than a little anxious to see what the powers that be choose as a fix for this ageless icon of Wall Street. I am also more than curious as to the obvious question, “Who is next?”…
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