Summary
Last Week Secretary Geithner said "Commercial Real Estate Woes Won't Spark Crisis"
Analysis
The Treasury and the FDIC have sanctioned "Extend and Pretend" as an official Government policy.
What this will do is simply push off the inevitable, hoping commercial real estate values rebound. Sorry to say that will not be case.
As the commercial leases which come up for renewal will be renewed at lower rents than what they were initialing paying, the new rent won't support existing debt. For those tenants looking to relocate and sign brand new leases, they will be paying substantially below market rental prices that were in effect during the boom years in which so much NEW commercial real estate debt was placed.
The banks will not have to write down the depressed prices of the real estate and debt they are holding, which will provide for a false sense of a banks real value in terms of their liabilities. They were already permitted to go away from the "mark to market" accounting method, and now they get this added bonus.
This is particularly troublesome for the future of commercial real estate finance... as what bank who is holding a lot of bad debt (restructured) and depressed values of the collateral asset itself, will want to make any NEW loans on commercial real estate thereby adding to their problems...the short answer they won't.
So the credit crunch will continue unabated until the Treasury and the Banks are ready to deal with reality. So Nero fiddels' as Rome burns
