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  • Severe Weather Warning for Commercial Real Estate: New TARP Not the Answer

    Commercial building for sale

    The Congressional Oversight Panel (COP), the watchdog board created by Congress to oversee the TARP program, yesterday issued the equivalent of a severe weather warning for commercial real estate markets. Like the residential market before it, the markets for retail, apartment, and other business properties are facing a wave of defaults which, says the panel, “would trigger economic damage that could touch the lives of nearly every American.”

    The numbers are grim. According to the COP, over the next four years $1.4 trillion in commercial real estate loans will come due, of which half are currently underwater, sunk by a 40 percent drop in values since 2007. Total losses could be some $300-400 billion. These losses would be in large part borne by mid-sized and community banks, who tend to invest most heavily in to the commercial market.

    Certainly, the negative effects of such a meltdown would be significant. The question, however, is how to address it. The COP admits that there is no easy answer.

    Possible steps, according to COP, include using government funds to provide fresh capital for affected banks, buying the troubled assets from the banks, and creating a guarantee funds for loans. In other words, extend the TARP bailout program – or key components of it – beyond its current October expiration date to address the problem.

    Policymakers should stop, however, before going down this particular rabbit hole again. As a first matter, this is not the sort of threat TARP was created to address. While economically painful, the situation does not threaten a sudden, catastrophic failure that would endanger the functioning of financial markets. None of the banks at risk would threaten the financial system by their failure. And the effects would be spread out over a number of years.

    By contrast, TARP-like intervention would impede the ability of markets to function properly. The COP itself warns of the dangers, saying:

    “Any government capital support program can create as much moral hazard for small banks as for large financial institutions, and government interference in the marketplace could result in bailing out the imprudent, upsetting the credit allocation function of the capital markets, or protecting developers and investors from the consequences of their
    decisions.”

    And that’s only the start of the problems. Would intervention lead to federal control of pay and other business decisions at hundreds more banks? To long-term government ownership? To Americans weary of the side effects of the original TARP, these are real concerns.

    Perhaps worst of all, intervention would not address the underlying problem: the fact the value of commercial real estate has dropped. No amount of government cash would change that fact.

    Ultimately, the best way for policymakers to address problems in the commercial real estate market — and help the financial institutions and the average Americans that would be hurt by its travails, is to improve the economy on which it depends. And that means reducing, not increasing, government intervention in that economy.

    Posted in Economics [slideshow_deploy]

    7 Responses to Severe Weather Warning for Commercial Real Estate: New TARP Not the Answer

    1. Fred Foldvary, Santa says:

      These real estate problems would not happen in the first place if land-value taxation replaced income and excise taxes.

    2. Jim, Maine says:

      The only solution to our problems is for ordinary citizens to get in the streets, elbow to elbow, signs in hand, and march on every last one of our elitist, corrupt, fat-cat elected officials! We have got to get some people with business experience in their place before it is too late!

    3. David Bess, Carson C says:

      Once again we see a devasting situation on the horizon. Once again the solution firmly lies with small businesses ability to expand. Today small business is shrinking at an alarming rate. Being the owner and CEO of a small business I face this everyday in my conversations with my customers, vendors and other business owners. The outlook is bleak at best, no one trust this administration to do the right thing and only sees more legislation and taxes that will hender small business in their efforts to grow and expand.

      Expanision creates more jobs, more needs from othet companies, and more space to operate. The space comes from the commericial real estate market.The only demand for comericial real estate is the small business community and today there is no demand, in fact just the opposite. Companies are down sizing and part of down sizing is consoladating to less space.

      So, until the administration figures out that government is not the answer we will see the situation worsen. seventy five percent of the private workforce is employeed by small business. This reality is being completely overlooked or even contested by the obsurd action of the oboma adminstration

    4. John B. San Diego says:

      Very humorous the first time I heard this;

      The ten most feared words in the English Language…….

      " I am here from the Federal Government to help you"

      Now after reflection on exactly what is going on here in the U.S. these words are no longer humorous. Neither Americans nor the elected officials we put in high offices can purchase prosperity.

      Ask Obama to explain to us all, as we watch and listen diligently, the last time the U.S. Gov. purchased prosperity that is with any degree success.

      What I predict We Americans get as a response will go something like this;

      A few moments of silence…..with a look away from the cameras……the game-face on……waiving of that finger; and then…..”What my administration has done is to save and create jobs!”……..pause……”now we” ….pause…. “Made difficult decisions”…….pause……. “Some of those decisions were unpopular”…..pause….. “Let me say this”….pause…

      And here comes that finger again—“we saved another great depression and the economy from collapse”…….pauses….. “We will continue to stimulate this economy as long as I am President”…….pause…..finger pointing…”Next Question Please?”

      Truth is nobody is selling prosperity the local street vendor all the way up to the I.M.F. it's not for sale anywhere so where do we think we can purchase prosperity

      American people must earn prosperity just as is has always been; what's that old line? (We create trust and dividends the old fashion way, we "Earn Them”); to paraphrase an old TV ad.

      U.S. Gov’s job "In Jobs Created" is get heck out-of-the-way!

      Confidence and a sense of stability , not changing the landscape of taxation and regulation drastically and constantly, creates the atmosphere for an individual to say to his or her partners in a business meeting; "I have a proposition, I am willing to risk my time ,my wealth, my reputation, and our futures would anyone like to join me"

      If the government has done its job; potential returns on investment and future profitability become relatively predictable.

      That is what Obama and Federal Gov needs to do: ladies & gentleman this is Economics 101.

      Back away from BIG overbearing GOVERNMENT!!!!!!!!!

    5. JWB KEENE, NH says:

      Well Obama just can't wait to by another assett for the federal with another TARP program that just seems to have so much pork and payoff's in it that the money never seems to help those for whom it is intended. I cannot understand how a country can just keep printing money for bail out programs or for plans to buy Greece to bail them out. Germany did that once and it led to biblical disaster. Ya me, Nancy & Harry are here to help. What a joke. Now we have spent so much money that China owns us and will start using our Debt as a diplomatic or maybe not so diplomatic tool. One other comment we need a president that is a leader – Regan would not let this Iranian situation pass without a comment, that is for sure. Well maybe someone unplugged Obama's telepromter – maybe some corpseman did it.

    6. Leon, Durango, CO says:

      When the original TARP was created AIG was for sale at Twenty Cents on the dollar. TARP allowed the new owners an 80% off sale from borrowed money at Zero Percent interest. What is the difference between this free money policy so Banks, rather than lending, could pick up bargains off the Public Dime, and theft? Looks to me like the Plutocrats are on the move again, but this time it is Commercial Real Estate they are getting for a song (that is gargling in Obama's chorus).

      Why not give people the option of buying back their homes at the same twenty cents on the dollar? Why not let the businesses under water buy back their Home Office at the same twenty cents on the dollar. Why should Obama's friends in the banking business get all the benefit and the People none?

      I'm sick of it.

    7. S L R, Southcentral says:

      The dangers of the commercial real estate market were predicted some twenty months ago by some who do not have the national credentials, but who do have the economic savvy to realize, government is impeding our economic vitality. The housing market bubble burst & all responded with huge gobs of government financial intervention. That means, our elected officials heaped gobs of TAXPAYERS money on programs that we were told would reinvigorate our economy. The programs helped were social justice programs, or what passes for supposed social justice. They are, the programs that suck the life out of a national economy & its ability to economically prosper. At the time housing went south, there were many saying, look out, commercial real estate will follow & it could be significantly worse. The responses from our national economists, those sucking on the teat of taxpayers after being appointed by elected officials, was a yawn.

      We knew this was coming, yet our current elected officials did nothing. Perhaps Rahm Emmanuel wants 'another' crisis to justify even more government intervention in our lives. All I know is, these people are incapable of operating a business & they have no understanding of economic markets or we would be creating jobs & not spending money on activist programs to scream at us how we must redistribute wealth so the problems are not as bad. The concepts do not work & have never worked. The Soviet Union is the best example of this but in truth, there are many more where such programs or pans, simply go nowhere & only ending up emptying the national treasuries of those nations where its been tried. Chavez in Venezuela may be the best, most recent example. Their treasury is just about empty now, so he will need to contrive a war so he can stay in office by laying blame on anyone & everyone, but him & his socialist policies.

      Seems to me, Obama & company are leading us in exactly that direction. TARP II will not solve this. Let them fail & let the bankruptcy courts do what they do best. That will solve our problems. Somehow, I doubt anyone in Washington is listening, so hearing me or anyone else is not likely.

    8. Val.E., Texas says:

      Needless to say, I am totally sick of the scared, money grabbing, power-hungry, weasly Democrats;

      But I am truly sick, sick, sick of all of them!

      From the two-faced Republicans who nod and smile to the President when on camera with him, and then give negative TV interviews against his policies;

      To the hundreds of unauthorized, little-minded, "pac-men" Czars (why are they still here?) who sit sneakily in the backrooms gleefully planning our further demise;

      To Emmanuel, and his like, for his imperious looks ("I'm so important, you can see how very important I am, see my chin is so far in the air its stuck that way,") and his unjustified sheer arrogance, and last,

      and certainly least,

      Mr. Obama his infamous self!

      I will never call him Mr. President, I don't even think of him as that.

      One of the Founding Fathers, and I am not talking the Pretending Imitators of today, once said, "We need a few scoundrels [in government]." And I'm sure over the last two-hundred years we've had more than a few. But this man, illegal alien in my opinion, had no right to be elected to the office in the first place, is by far, the very worst in all our history. Watch how he speaks only to Black folks, then changes when speaking to "the rest of us." It is disgusting! He cannot rule, he certainly cannot speak, without help, and has no right to the position.

      I love my country and I love our system of government, when it is properly run, but never before have I felt so much loathing, and at the same time, so much sadness to see what he is doing to our beautiful country and our people.

      Most of us do not realize, or see, how he is deliberatly, financially, inch by inch, decimating our liberties and the foundation of the United States. Pretty soon, if not already, the rest of us will be 100% owned by China, however, our own government will be safe with most of the world's gold and their pocketed Trillions.

      Frankly, I'm tired of being sick of them. I'm tired of hearing about the unnecessary, Obama-made, deprivations and hardships being inflicted on us. It's time to get rid of them! I want to be happy again. I especially want to see small business back on its feet, and I want to see the country happy again.

      People at Heritage, would you please list for us, along with impact :

      All of Obama's laws;

      All of Obama's private sector purchases;

      All of Obama's payoffs to various states, and,

      All of Obama's illegal activies according to our Constitution.

      These things need to be listed, nothing in detail, just a list that says, "They did this and this is the impact." That's all, and it should be made public, immediately. Most of us know bits and pieces, but we should all know everything.

      Now is the time, while we are still somewhat Free.

      God Bless America!

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