Comments on: Old Whine in New Bottles: Commercial Real Estate Lobbies For Bailout

By: tyson vandament

tyson vandament — Fri, 10 Jul 2009 17:14:03 +0000

People continue to argue that me must bailout industries in order to prevent the economy from going deeper into recession; that is illogical, asset prices need to fall, commercial real estate is no exception. Seriously, all of our money is being used to prop up these edifices of the past, not investing in our future, where is creative destuction when you need it. I dont want to know how much better off we would have been if we had taken the bail out money and simply invested it in education, grants for small businesses and graduating students(they cant find work), reforming healthcare and extending unemployment benefits? This extends beyond wall street or main street, this is about one generation bankrupting another, those in power are sucking the life of the young to prop themselves up. Im tired of watching a generation who had every advantage, and who failed despite it rob its children to pay for its own incompetence.

By: Brian

Brian — Fri, 10 Jul 2009 16:33:23 +0000

After taking in and digesting Simon’s content, I fear that the USA economy in particular will over a long period of time beget crises, financial and economic, that are driven by the very “connectedness” of all economic actors participating in the economy; and to the vested interests we should not rely upon for the solutions. A thousand and one cuts will bring the giant to his knees.

By: Rockfish

Rockfish — Fri, 10 Jul 2009 13:25:07 +0000

Somehow, I imagine the developers and other RE investment companies will be allowed to twist in the wind but the banks will be magically insulated from detrimental balance sheet impacts.

There is no motivation to save the private companies (unless one of them can show they employ 300k people) but the banks will be covered at all costs.

By: Michael M Thomas

Michael M Thomas — Fri, 10 Jul 2009 12:27:49 +0000

Back in Nov I wrote on Forbes.com that it was Lehman’s commercial real estate book that caused the Fed etc. to back away from a bailout. “We pick up these assets,” I envisioned Paulson thinking, ‘and the next thing we know, Donald Trump’ll come begging.” Well, here it is.

By: Bayard

Bayard — Fri, 10 Jul 2009 03:27:06 +0000

Simon, the key statement in your article is:

“Of course, if commercial real estate worsens considerably, we will see further damage among banks.”

And, that is the real issue. Residential foreclosures continue (and will, with unemployment on the rise), and commercial is now increasingly moving toward more and deeper failures (and will continue with retail sales falling, and businesses cutting back more and more).

The upshot is that these issues (together with state bond defaults, and other credit failings, both individual and corporate) cannot help but cause even greater stress on questionable bank “legacy” assets. The real question is: do we continue to prop up banks, or, if not, will a more specialized form of stimulus be necessary just to keep the credit markets from collapsing completely?

Back in March, I predicted that by August or September, things would once again become much more desparate (like late last year and early this year. I hope I’m wrong, but I see only withered brown shoots, and little good economic news (IS THERE ANY AT ALL?).

What is going on with commercial real estate seems as though it may be the tip of the next huge economic iceberg. Say it ain’t so.

By: Manshu

Manshu — Fri, 10 Jul 2009 00:40:58 +0000

Prof. Simon, This is unrelated to this particular post and I apologize for that, but, I have always wondered what you thought of the Taibi article?

By: Gregman2

Gregman2 — Fri, 10 Jul 2009 00:40:09 +0000

“even some of the most libertarian people I meet think the government should help them personally when times are bad.” Odd how it is with the Ayn Rand crowd.

By: Huyu

Huyu — Fri, 10 Jul 2009 00:09:33 +0000

Before history started, there was the Fed and 1000 banks. In the land of the east, there was the People’s Bank of China. Fast forward 40 years. There is the Fed, and all teh Fed’s subsidiaries like Citi Bank, Bank of America. And there is the People’s Bank of China, in a much smaller capacity, and 1000s of other banks. Fast forward another 40 years, what would the world be like?

By: DesolationRow

DesolationRow — Thu, 09 Jul 2009 23:40:44 +0000

If residential homebuilders didn’t get a bailout, why would commercial real estate companies get one? Probably because their debt is on the big banks’ balance sheet. The administration will not let any of the stress-tested banks fail so to the extent any CRE loans would threaten one of those “chosen few”, they will get a bailout…and it’ll most likely be via some kind of back-door arrangement a la AIG.

By: Lavrenti Beria

Lavrenti Beria — Thu, 09 Jul 2009 23:10:39 +0000

That’s me. Just don’t believe the scurrilous lies that the swine Khruschev and Malinkov disseminated in 1953 about my spying for the English. More important, don’t ever believe their fairy tales about my trial and execution. I mean you don’t see anyone parading around the internet with the nome de plume, Gregori Malenkov, these days do you?

By: RueTheDay

RueTheDay — Thu, 09 Jul 2009 22:48:40 +0000

“The global crisis is surely not finished, but we are out of the panic phase.”

We are out of “A” panic phase, not “THE” panic phase. Recall that there was a smaller panic phase in March 2008 when Bear was collapsing. There may be more coming.

By: Mbuna

Mbuna — Thu, 09 Jul 2009 22:20:48 +0000

Presently the government gravy train is the only game in town. If you are not currently on the train, have no tickets for the train and don’t have any way to get tickets then consider yourself a fool and realize you are being taken to the cleaners. It may be time to forgo that college education for a political education. Stop saving for college and start saving for that trip Washington DC to visit you representatives and (more important) all those lobbyists-probably the sector of the economy with the highest growth rate!

By: Anon239

Anon239 — Thu, 09 Jul 2009 21:59:14 +0000

According to reports in the online version of the Wall Street Journal, one of the largest real-estate investment trusts in the US is seeking to raise $1 billion to invest in commercial properties.
http://bit.ly/fdag8
It appears that there may be enough private investment available again so that government can stand clear on this new whine.

By: Taunter

Taunter — Thu, 09 Jul 2009 21:49:00 +0000

If policy makers could accept that “asset prices need to fall” the entire bailout could have been avoided. It was precisely the ingrained need to see charts up and to the right that caused the massive investment of taxpayer dollars and hot air that pumped up the market.

Indeed, the distinction between CRE and residential turns out to be quite limited in the sense that residential ALSO needs to fall, and fall much more, to the point where a median salary can service the payments on a median house with enough cushion to provide for life’s vagaries (divorce, illness, job loss, etc).

By: don

don — Thu, 09 Jul 2009 21:36:59 +0000

I fear the taxpayer may be on the hook for much of the CRE losses if, as it appears, they are on loans from FDIC-insured banks, since the FDIC is already treading water.