While the MSM is for the most part pretending that the crisis in real estate is over, we are really only starting to see the bigger problems in commercial real estate- and it sounds like the government is worried: [Hat tip Freedom’s Phoenix]
Last week a story which gained very little traction hit the financial newswires. The U.S. Treasury is working on an internal project informally called “Plan C” which seeks to deal with further problems in the economy before they occur. The anonymous report came out stating the administration is reluctant to commit any additional money especially to the level mentioned in the report. However this is a disturbing new development in our bailout nation since this is one of the first times that the U.S. Treasury will try to preemptively deal with a financial problem.
The issues with this Plan C is that it is setup to be a buffer on further deterioration in various loan categories but the big one is commercial real estate. The commercial real estate market is gigantic and many of those loans are still active:
What does this mean in terms of an economic recovery?
The amount of maturing loans in commercial real estate will double in 2010 and will continue upward into 2010. The chart is very clear and this is only for debt in CMBS and not held by regional banks which is over $2 trillion. This is the next multi-trillion dollar bailout you have yet to hear about. In fact, while many are discussing a second half recovery higher up officials are already planning a bailout for the commercial real estate industry. The challenge with this bailout is you are asking a public with 26,000,000 unemployed and underemployed Americans to shoulder the debt of largely speculative plays. To many it is palatable to bailout the residential real estate market because the public can understand that (even if it may be wrong) or bailing out the 2 large U.S. automakers. Yet bailing out the commercial real estate market is going to be a political nightmare.
Here’s the conclusion reached by "mybudget360":
The end of the road has been reached for commercial real estate. Many regional banks jumped into the commercial real estate market since they had little chance of competing with big subprime and Alt-A mortgage factories like WaMu or Countrywide. Many regional banks saw this as a way to stay competitive in local regions across the country. This is a much more diverse problem and the tentacles of the commercial real estate bust will be felt in every state.
The solution that government has had for economic indigestion has been to reach for the "Alka-Seltzer"- to medicate with bailout bubbles. The Alka-Seltzer box is running low, and taxpayers and Congress aren’t going to want to pay for another box. The next bout of indigestion looks to be a bad one.