The Commercial Real Estate Bubble…Coming To A Bank Near You

I know you folks are very savvy, paying attention, and doing math with a real pencil instead of a red crayon, so what comes next is NO SURPRISE to you.  Are we all ready for the next part of the rollercoaster ride when the commercial real estate bubble implodes? If you still have money in the stock market, why is that? (Once again, bold emphasis is mine, and may I repeat how screwed we are?)

From the WSJ:

U.S. Presses Some Banks to Act After Stress Tests

WASHINGTON — Federal officials are pushing several of the country’s largest banks to bolster capital reserves, people familiar with the matter said, as regulators try to repair bank balance sheets and the public image of the U.S. banking sector.

I can almost hear you speaking…

The identities of the banks, among the 19 institutions that were subjected to federal “stress tests,” couldn’t be learned. Analysts believe they likely include regional banks with large exposures to commercial real estate in the Midwest and Southeast. Three people familiar with the matter said at least three banks are in this position.

Government officials believe most banks in need can improve their capital footing without taking money from the government bailout fund. This would be done by raising funds from private investors or converting the government’s existing investments in banks into a new type of equity that would better cover banks in case of future losses.

That would be common shares or nationalization.

In the latter scenario, the U.S. could end up owning large chunks of banks, raising the specter of something akin to nationalization. Federal officials have said any such move would be temporary. Some banks could end up requiring a cash infusion from the Treasury.

Is anything temporary with this government?

In February, the Obama administration said 19 bank holding companies with more than $100 billion of assets would have to undergo a stress test. The move was designed to calm fears about the solvency of the banking system. The exams, conducted by more than 150 federal regulators, analyzed potential losses from residential mortgages to complex securities products.

Oh, I am so calling b*llshit on that phrase.  The move was designed to see what would happen when the commercial real estate bubble imploded.

Regulators want banks in the future to be able to maintain an additional “buffer” of capital above the minimum standards, a Federal Reserve official told reporters Friday. The official wouldn’t identify the specific buffer.

Because that would give it away, yes?

The Fed released the methodology for the tests Friday, although didn’t provide many of the specifics that bank investors and analysts had been seeking.

Imagine that?

In embarking on the tests, government officials are walking a tightrope. The move could have the opposite its intended effect and raise public fears that banks ordered to raise more capital are on the verge of collapse. The Fed specifically said Friday that needing to boost capital should not be viewed as “a measure of the current solvency or viability of the firm.”


Under the tests, all 19 banks are all believed to be “well capitalized” by current standards. The tests, however, pushed banks to determine what their conditions would look like if the economy worsened precipitously.

Like, for instance, trillions in commercial real estate defaults?

Fed officials and some of the banks wrapped up in less than 60 minutes; others dragged on for several hours, according to people familiar with the matter. Participants were told to keep mum on what was discussed.

Those would be the banks that are heavily leveraged in commerical real estate.

The 19 banks identified by the government, and the winners are: J.P. Morgan Chase & Co., Citigroup, Bank of America Corp.,  Wells Fargo & Co.,  Goldman Sachs Group, Morgan Stanley, MetLife, PNC Financial Services Group, US Bancorp, Bank of NY Mellon Corp., SunTrust Banks Inc., State Street Corp., Capital One Financial Corp., BB&T Corp., Regions Financial Corp., American Express Co., Fifth Third Bancorp, Keycorp, GMAC LLC.

Read the government’s methodology here, produced by the Board of Governors of The Federal Reserve System.  (A round of applause, please?  Did.Not.Think.So.)

Ladies and Gentlemen; once again, buckle up…

By Logistics Monster


  • Hmmm. Looks pretty much like the same group of banks that have been boosting their credit card rates on everyone (including on-time payers)without warning. Guess we’ve just bee given a list of the parent companies of the New World Order.

    In New Speak that means that everyone else just got voted off the(Cayman) Island…

  • Since I read The International Forecaster (Bob Chapman), and listen to his interviews on blogtalkradio, I’ve know about the commercial real estate bubble for some time. But in reality all one has to do is look at the number of commercial real estate vacancy signs everywhere, on every corner, in every town across the country. In time, parts of Manhattan may look like a ghost town. Those signs are a barometer of the depression. Unlike the subprime bubble, this bubble is not talked about much, if at all, except on certain savvy websites.

    The next big bubble that is the bubble of all bubbles, is the quadrillion dollar dirivitives bubble. You’d better be strapped in for that one folks.

  • I wrote about the commercial real estate bubble a couple of months ago. I read the one piece I found on it. No one else was reading it. My husband and I find our selves counting the number of unoccupied commercial real estate all the time. The number keeps on growing… There is a big gaping hole in one of our strip malls…the one where Circuit City use to be, then there is the other gaping hole where a Lenexa, KS based company used to be….Linens’ N Things….and the empty store fronts in the malls as more and more companies go out of business with no one left to fill them…

    Anyone with a modicum of common sense realizes that Commercial Real Estate is in real trouble.

  • And one of these was the local branch of a national real estate company who closed down and left all their local agents on the street, so to speak.

    Perhaps there is a silver lining to all the vacant store fronts. There should be plenty of space for new candidates for Congress and the Senate to set up shop. The time is ripe for new faces to throw their hats in the ring during this period of disgust with the incumbants.

  • The REAL BUBBLE that will eventually pop is…..the fiat dollar that has no real value. It is an invention of the banks and when they loose on a loan, they really loose nothing, because they created the money they loaned from thin air, with the fractional reserve system ($1 deposit = $10 to loan out). When the dollar collapses (and it will) we ALL LOOSE!!!! That is what this whole song and dance is working towards!!! All is going according to plan!!

  • One thing that I have not seen discussed anywhere is the fact that in the first TARP by Bush, the 10% reserve requirement of the fractional reserve was reduced to 0%. This gives the banks far more leeway and far less exposure. Now for every $1 deposited, they can loan an infinite amount amount because there is no reserve required. This fact has been kept buried…WHY????

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