The Coming Collapse Of 2009?
While I am hardly a financial expert, I do like to try and look ahead to see what is coming with the economy in the future. I often am reminded of the scene in ‘Trading Places’ where Eddie Murphy’s character uses his knowledge of how average people work to predict things more effectively than the so-called experts.
As a bankruptcy attorney I saw the banking collapse coming well before most did because I saw so many banks losing tons of money when people surrendered their homes. It wasn’t so much that I was a genius as I was just in a position to see places like Countrywide losing millions of dollars in mortgages from my cases alone. It didn’t take much time to figure out that if every other bankruptcy attorney was seeing the same thing that these banks were in deep trouble.
The other day I had another moment of pondering as I drove past a shopping center where we used to have a Mervyn’s and just down the street was a Circuit City and Linen’s and Things location.
As I thought about these vacant storefronts I was reminded of a building I used to rent an office in. The owner didn’t do a good job of keeping his renters happy and pretty soon the place was vacant and he was in big trouble.
This led me to ponder just what is going to happen to all of the empty commercial property being given up by these bankrupting businesses. While some will certainly attract new renters it is likely thay many will find it tough to rent in a down market. This is likely to lead to some significant cash flow problems.
Beyond that many of these shopping centers were anchored by the now vanished stores and now there is likely to be a ripple effect with smaller businesses in the center, leading to even more losses.
Doing a quick check on the internet it seems that I am not the only one concerned with this potential problem. Indeed it seems like the commercial market is actually in an even worse position than the residential one was when it comes to being overextended and it does not look like we have any plans in the works to solve the problem.
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8 Responses to “The Coming Collapse Of 2009?”
Depending on where you are in the country, the commercial real estate market has already collapsed. I've got friends in the commercial real estate business and they've had no business for over a year – at least.
I recommend the highly regarding “Calculated Risk” blog (http://www.calculatedriskblog.com), although if you think you feel bad now, having explicit data on why you ought to feel bad thrown at you may make you feel worse!
I'll also add that I'm suspicious of anybody who includes suspending mark-to-market accounting rules as part of a solution. Yes, the markets are in a sort of panic phase. But suspension of M2M is basically just allowing banks to fudge the worthlessness of their assets.
The free market, consumer driven economy of the US is working as intended.
Whats not working as intended is congress. BusinessWeek reported in its Nov. 14, 1994, issue that Fannie Mae called on Frank to exert his influence against a Housing & Urban Development proposal that would force the GSE to focus on minority and low-income buyers and police bias by lenders regardless of their location. Fannie Mae opposed HUD on the issue because it claimed doing so would “ignore the urban middle class.”
In 2003 then secretary of Treasury Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.
Franks response who as in charge of the oversight of Fannie and Freddie……….”These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
There is lots of blame to go around. This incessant finger pointing at Wall Street or the GOP is nothing more then trying to cover up the true culprits in this. Bush and McCain both tried to rein in Fannie and Freddy and was blocked every step of the way by democrats who wanted “AFFORDABLE HOUSING.”
Well it was affordable all right. If their heart beat. They got a loan. Even MSNBC last night aired a piece on the incredibly stupid lending practices that were Freddie and Fannie and the rest of the industry piggy backed them to the brink of bankruptcy.
Barney Frank and his Fannie Mae lover should be strung up for this. But by the gods he is going to get away with it because of a press that is more enamoured with Obama and still hoping for a Bush lynching then it is about gleaning the truth about anything.
Not only has Japan provided the closest-to-contemporary example of what we all may face for a few years (yes, deflation has been possible), but the latest news about Japan is more bad news. I'm surprised Mikkel hadn't started a thread about this yet today.
Down goes a major part of the global economy and a major exporter.
http://www.economist.com/world/asia/displaystor…
DLS the bad thing for Japan and Asia is that they are net exporters and in times of trouble they are the first to be hit.
The USA on the other hand is a net Importer and so we can actually cut back imports and the people hurt are not Americans but rather people from other nations. There has always been a method to the USA for having a larger Trade deficit rather then a net Trade surplus. Its an insulator from world wide bad news.
“Whats not working as intended is congress.”
The “fun” has only just begun! Now that the “stimulus” bill most accurately and succinctly described yesterday as “vague and controversial” has been passed, never mind whatever future “stimulus” and “rescue” and “building for the future” measures are eventually sought; already what's on the minds of many is what the Dems will rush to do about health care. Stimulus, all done; now it's time for the next big, new thing, such as health care.
When I read this quote I thought about what I've mentioned to you several times when I expressed skepticism we'd be as “lucky” as Japan:
“Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said the three main pillars that lifted Japan out of the so-called ''lost decade'' of the 1990s had crumbled — favorable exchange rates, overseas investment and demand, and old industry such steel, cars and chemicals.
''The recovery was unsustainable,'' Schulz said. ''It was built on a major global bubble, and now basically the economy is paying the price.''”
Now that the bubble is popping they are facing a lot of the same problems they always were. This is why I don't think we can successfully navigate to a lost decade but will have something more severe.