Second wave of defaults
The other day I was talking with a friend who is in real estate and he made the statment, " Just wait till the second round of loan defaults hits." "When is this going to happen", I asked. "When the banks get tired of being nice to Mr. Obama", was the reply. So, yesterday I ran this by a banking friend of mine. He said, " O yes, it is coming in a big way. The first crash was personal home mortages. The next wave of defaults will be in comercial realestate and will be just as big and costly." I am not a finance guy, so….
1. Anyone heard this?
2. If so, when might it start?
R. Bailey – Louisiana
rbplains – This chart says it all: http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg
Hope this helps.
1 Yes, it is written in plain letters a mile high, but written in ink that is invisible to those who think the emperor is wearing clothes
2 Every day I am astounded that the crash has not happened…… can only put it down to collective stupidity. Historically October is a bad month……
Karl Denninger is a good place to start
In earlier posts he covers it in detail along with the graph that Mike linked to.
Scan through his articles, he writes some pretty good stuff with good detail using very basic data.
For his 2008 predictions and results followed by his predictions for 2009
It may have been him that said something like " if this current mess was caused by 1.5 trillion of subprime, what is going to happen when 1.5 trillion of alt a and option arms and 3.5 trillion of CRM’s hit the wall"
- Alt a’s and option arms is really wave 2 of the residential mess 1.5 trillion
- CRE I’m seeing estimates from 3.5 trillion to 5 trillion
- There are 19 million vacant homes
- Another 4-5 million on the market
- And folks who had no option but to take out exotic loans now don’t have that option
I would therefore conclude that real estate has a long way to go. Also, if 1.5 trillion knocked the economy to it’s knees what will 5 trillion do to it?
It’s my sense that we may be building up to another "October Surprise." They can only keep those balls in the air so long.
Commercial Real Estate is about a 3.5tt market, smaller than the residential market’s 12.5tt size but expected to have similar losses. The events are expected to have less systemic consequences, however, as commercial loans are more spread about the regional banks, of which an additional 400-600 are expected to fail next year….October is almost over and when folks get their Q3 401k statements, with the dow over 10k and the S&P over 1k, it will have a stabilizing effect.