Posted on 07/08/2009 12:34:44 PM PDT by BP2
The Federal Deposit Insurance Corp. is gearing up to handle a large number of bank failures expected as a result of bad mortgages, both in residential and commercial real estate, an economist said Tuesday.
Dotzour expects federal regulators to establish an agency, similar to the Resolution Trust Corp. that disposed of assets belonging to insolvent S&Ls in the late 1980s and early 1990s.
“Once they start to sell [foreclosed real estate], we’ll find out what the market really is,” Dotzour told attendees at an economic summit hosted by a handful of real estate groups in Tampa, Fla.
Dotzour blamed federal intervention for the lack of commercial real estate investment activity in recent months, as well as the failure of businesses to make major decisions.
“Nobody knows what to do so they’re doing nothing,” Dotzour said at the luncheon meeting at the Intercontinental Tampa.
Government, in its quest to help the economy, is causing harm by propping up failing companies and regularly changing rules, he said.
“No one can predict what the government will do,” Dotzour said.
“People are frozen. It’s not that they don’t want to invest in the future, the rules are unclear,” he said.
He jokingly called the Federal Reserve “inksters” for routinely printing money to bail out big business, including banks that are still not making many loans.
The government’s role in a capitalistic society, he said, “is to make the rules and get off the dance floor.”
Businesses and individuals that can’t pay their bills should resolve their problems in bankruptcy court, not with money from the government, he said. It’s a process that has worked for decades, for generations.
“Everyone has a lesson to learn here, including you and me,” he said. “We have to live within our means.”
Dotzour expects foreclosure rates to continue to climb, real estate prices to fall more and cap rates to rise to at least 9 percent before leveling off.
In 2010 and 2011, interest rates will begin to rise, as will inflation. Once investors realize the market is at bottom, deals will begin to flow again, he said.
In the meantime, he compared the bad loans that remain on banks’ books to a smelly cat litter box and the feds keep throwing more litter on top to mask the smell. But they’ll eventually have to remove the organic material to fix the problem.
Holy schenakies.
The government’s role in a capitalistic society, he said, “is to make the rules and get off the dance floor.”
Exactly! As a small business owner, I had to throw out my long term business plan after Oct. Day to Day operations in effect. You can’t play the ‘game’ if you do not know what the rules are.
It amazes me how if the stocks market goes up a little, many people think life is good and it’s all over with. It has only just begun.
That's tagline material right there.
So did we. Our 2009 plan is to starve the beast.
Serious Ping. (My Tagline is in the past tense.)
I agree. I would only modify it to say, “a very few rules”...
I don’t think my bank does mortgages. I wonder if it will fail.
As nifty as your charts are, they don’t reflect the sort of lending that is going to cause the failure of many local and regional banks: construction loans and commercial real estate loans.
The way that the major national residential mortgage lenders priced so many local/regional banks out of the residential mortgage market had yet another unintended consequence: the concentration of local/regional banks into construction and commercial real estate loan products. Now that CRE is starting to take it on the chin pretty hard, these smaller banks are suffering from this concentration of risk in their loan portfolios - but that isn’t reflected in the RMBS stats and charts.
The Financial Accounting Standards Board eased the rules on mark-to-market bookkeeping in April. But the banks can't keep the foreclosed properties off the books FOREVER.
When banks begin executing on the mass of foreclosures that have happened in the last few months, the new rules will bring all those non-executed foreclosures onto the books. When that happens, they'll be forced to ‘mark to market’ and will have to put the new low value of the properties onto their books. The huge loses mean they'll be even further uncapitalized, and the government will force them to raise more capital, or close down.
As a result, it's really worse than the banks are reporting ... in more ways than one!
Got it...
The Federal Deposit Insurance Corp. is gearing up to handle a large number of bank failures expected as a result of bad mortgages, both in residential and commercial real estate, *caused by the very government that runs us*, an economist said Tuesday.
hahaha
Near where I live, there's several LARGE companies that rent/sell large construction equipment — earth movers, large dump trucks, etc. Their inventory is at a standstill.
About the only Commercial lending for construction I see going on is: 1) for projects already funded (medical centers, insurance repairs, etc); and 2) multi-family housing (rentals/apartments).
Also, at a family reunion over July 4th, I spoke with family members about the economy — one of them a Small Business Loan Banker, the other a “master” Commercial Appraiser.
My relative who is a SBA lender told me he has not closed a small business loan in the last 11 months (he gets other residual business, but it's very light). The other relative, the Appraiser (former CEO), told me that if it was not for Litigation/Condemnation cases his company gets (mostly pipeline), he'd have almost NO business.
The large institutions (who have credit good enough to borrow in the first place) are not borrowing money because they see NO growth happening in the near future.
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Thanks for the ping Lucy. One small, hopefully positive note...We found a local, small, privately owned bank that did not accept TARP money. A true rarity.
The authorities say the new toll roads are making a difference but, many of us think it's because of the lack of construction/work vehicles and such.
I'm in a service business in the Austin area and there is a lot of empty office/commercial spaces.
At present, the economy seems pretty sound around here but, you gotta wonder what's lurking.
No joking here. Absolutely agree... protect yourself and your family.
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