The trillion dollar bailout you didn’t hear about – Commercial real estate values plummet again yet banks hide losses. A $3.5 trillion financial disaster in the making. We are now proud owners of an AMC theater and Chick-fil-A.

The latest data on existing home sales should tell you exactly where we are in this so called recovery.  Average Americans are unable to purchase big ticket items without massive government subsidies.  It is also the case that all the too big to fail banks are standing only because of the generous support of taxpayer money.  Without large tax credits and the Federal Reserve buying down mortgage rates the housing market is extremely weak.  Yet very few of the housing “analysts” actually bother to ask why they are weak in the first place.  The employment market is in disarray and wages have fallen for everyone outside of the top 1 percent of income earners.  The bailout fatigue is running out of steam but banks are using clandestine methods to offload trillions of dollars of commercial real estate to taxpayers.  The next giant bailout is already happening but you probably haven’t heard about it.

Commercial real estate values continue to slide:

cre values

Source:  MIT

For the latest month of data prices fell an additional 4 percent.  Now this is coming at a seasonal time when real estate values usually see price increases.  But people are pulling back and spending less money on discretionary items.  This is happening for a couple of reasons including the fact that wages have been stagnant for over a decade and the underemployment rate is still near peak levels.  Commercial real estate in places like Las Vegas has crashed because who is out buying million dollar condos in this market?  Very few and that is why you are seeing many places having vacancy rates of 50, 60, or even 70 percent.

vacant condos

TALLAHASSEE — Condo bills have flooded the Capitol.

More than five dozen have been filed during the legislative session, as Florida grapples with its real estate crisis. But boil down the language of the proposals to help cash-strapped condo dwellers, and there are only a handful of ideas:

Make it easier for investors to buy multiple units in empty buildings. Delay state-mandated upgrades. Discover ways to punish owners who don’t pay skyrocketing association dues.”

So instead of letting prices correct and allowing markets to set the actual price based on lower incomes, the government and specifically the banking and housing industry are trying to do everything to keep home prices inflated.  Ironically they are using agencies that were intended to help low to moderate income buyers purchase, in essence, affordable housing.   And if the prices don’t stay inflated, they offer big discounts only to their crony friends.  So how exactly is this benefitting the typical American family?

Over a year ago, the U.S. Treasury was secretly discussing “Plan B” about gearing up for a giant commercial real estate bailout.  Not much was said about this in the mainstream media.  Yet now we know that banks specifically the Fed are taking on incredible amounts of CRE loans onto their books.  In other words, the bailout is already happening.  Think this isn’t the case?  We now own a mall out in Oklahoma:

mall

Source:  NPR

“(NPR) As part of the bailouts of AIG and Bear Stearns, the Federal Reserve Bank of New York spent more than $70 billion to buy toxic assets the companies owned. Last week, prompted by a lawsuit filed by Bloomberg News, the Fed finally told the world exactly what it bought.

The Fed now owns loans to Hilton hotels in Hawaii, Puerto Rico, Malaysia and Trinidad. It owns loans to the Miami airport, and the Civic Opera House in Chicago.

It also owned a loan to Crossroads Mall in Oklahoma City. Then, when the owners of the mall couldn’t make the payments, the Fed foreclosed. So now it owns the mall, which includes a Chick-fil-A and an AMC theater.”

How much demand exists for this out in the current market?  There isn’t much if you look at current CRE values.  But prices are continually distorted as more and more money is filtered to the banking sector of the economy.  Keep in mind that many banks have incredible amounts of CRE debt.  As we just saw with existing home sales, without massive tax subsidies the market is still overpriced.  CRE values are coming down to reflect their true values yet the suspension of mark to market and the ability of banks to roll over bad loans keeps price discovery hidden long enough to devise additional ways to push this toxic waste to taxpayers.

The fact that the entire banking system is now held up by taxpayer money, we have in effect nationalized the banking system with no actual benefits of nationalization.  That is, all the profits go to banks while all the losses hit the taxpayer.  This goes for Bank of America, JP Morgan, Wells Fargo, AIG, Goldman Sachs, Fannie Mae, Freddie Mac, FHA, and every other entity that is a ward of the state in one way or another.

Commercial real estate has gotten zero play in the mainstream media even though this is a $3 trillion market.  Does the public drive by an empty condo building or strip mall and think about the larger implications?  Maybe they don’t and that is why the government and banks are working together to slowly work their shadow bailout.

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3 Comments on this post

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  1. X said:

    Profits are privatized, losses are socialized = communism

    August 25th, 2010 at 10:12 am
  2. Creative Destruction dot US said:

    The Federal Reserve system is obscene.

    Prior to 2008 I had little knowledge of economics. Since the crash I have spent many hours reading blogs, books, newspapers, etc. I have found sources that are trustworthy and My Budget 360 is one of them.

    Thanks for keeping an eye out on this massive fraud.

    I’ve put my anger and mixed with humor to make t-shirts, caps and bumper stickers that are critical of these oligarchs. Check out the official Plunge Protection Team jersey at my site. Bankrob America, Shittybank, Robabank, Vice, American Excess and Master Plan.

    August 25th, 2010 at 3:38 pm
  3. what he said said:

    “Profits are privatized, losses are socialized = communism”, well said.

    Somehow I think the two political extremes of America (far right and far left) are in an unknowing alliance that well lead to one hell of a “storm” a few years from now.

    August 29th, 2010 at 2:28 am

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