Just in case any of you liberals were still rolling around in green shoots and chanting “Obama will fix it, Obama will fix it”:
Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.
Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S.
The state of commercial real estate was one of the most- asked-about subjects in questioning by lawmakers so far in Bernanke’s two days of testimony on the economy. Bernanke said today in the Senate and yesterday at the House Financial Services Committee that it’s too early to tell how effective the Fed’s main initiative in the area will be.
The Term Asset-Backed Securities Loan Facility, a Fed emergency program that lends to investors to purchase securities backed by consumer and business loans, began accepting commercial mortgage-backed securities as collateral last month.
Fed policy makers will extend the TALF, currently scheduled to expire Dec. 31, should they judge financial markets are still “some distance from normal operation,” Bernanke said today.
Given the number of empty store fronts I see in my drives around Las Vegas, it would not surprise me if a wave of commercial defaults are on the horizon. The question is just how big it will be and whether this will be the death blow to our already over-strained financial system (its either this, or the “second wave” of home foreclosures, or China’s impending collapse – any or all, and there’s nothing, really, we can do stop any of them…though we can paper over the cracks for a short while).
We’re going to learn our lesson, good people, and we’re going to learn it good and hard.
UPDATE: Via Mish’s Global, Moody’s is grim on commercial real estate.
Blogs For Victory 