Why We’re Going To Bail Out the Banks Again

Here we go again. Yves Smith links to a WSJ article that highlights how banks are not saving nearly as much as they should be for expected losses in the commercial real estate sector, assets that could lose $1-$2 trillion.

Calculatedrisk has a series of posts that hammer the point home: up to 20% of all hotels defaulting (with a larger percentage of the debt defaulting), apartment prices falling and leading to record defaults, and office complexes suffering the same fate.

This is in addition to the triple whammy about to befall residential real estate, where the tax credit ends, the Fed slows purchases of the securities and the largest wave to date of foreclosures hits the market (up to 7 million).

In spite of all this, the banks are setting aside few loss reserves in order to boost their profits (and thus bonuses) and share prices to issue more stock. They are counting on the government to continue to funnel them money when it’s needed, and it’s setting up another high stakes game of chicken.

All of this is why one of the people that foresaw the crisis predicts a “bloodbath” in the latter part of the year. This view is being increasingly shared by the small group that warned about it last year (and who were given some credit for the stock rally when they predicted one last spring based on government favoritism towards the banks).