Paul Craig Roberts: Another Real Estate Crisis is About to Hit

[marmar]

from CounterPunch:



Another Real Estate Crisis is About to Hit
By PAUL CRAIG ROBERTS


For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.

The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.

The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.

Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.

Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans. ...........(more)

The complete piece is at: http://www.counterpunch.org/roberts01222009.html

[Lebam in LA]

1. Why is there such surprise at the collapse

Anyone watching since the 80's to what was happening, this is no surprise, except that it took this long. Since the 80's CEO's came from the people that rose through the financial sectors instead of the rising out of the manufacturing parts of the industries. The financial born CEO's only saw the companies as ways to make $ by selling them off.

I ramble:shrug:

[napi21]

2. This is not surprise! I forecast yet another crisis, and it most likely

will happen at the same time as the commercial RE one. CREDIT CARDS! Woth so many people losing their jobs, coupled with the over-extention of credit for several years, I predict the downfall of the CC business will be bigger than the RE market.

I'm not usually such a pessimist, but I haven't seen anything good on the horizon for a long time, and still don't!

[TwixVoy]

5. It upsets me when people use the term "credit card company"

there is no such thing as a credit card company. There are BANKS and CREDIT UNIONS. These are the only institutions that offer credit cards. A lot of people don't seem to realize that.

You are right credit cards will be the next shoe to drop.... and it will be another massive blow to the banks that are already insolvent from the first wave of mortgage defaults. The next wave of credit cards, commercial real estate, and next option ARMs mortgage wave will finish them off.

I have said it before and will say it again. We are looking at the complete collapse of the US economy.

[Idealism]

3. The CRE market has been crashing for awhile now

But because their refinancing happens once every 5 years per property, the crash happens all at once and not as frequently as residential real estate mortgages.

[pnwmom]

4. He makes some good points. I hope Obama listens, especially about outlawing

credit default swaps.

[TwixVoy]

6. How would that help?

Credit default swaps are insurance against bad debt. With out them very few would be willing to lend, which actually IS important to a healthy economy when it doesn't go bat shit crazy.

The problem is we allowed TOO MUCH debt to pile up. We allowed low wages to be substituted with debt for too long. We allowed a lack of regulation to allow CRAZY loans to be approved that no one in their right mind 20 years ago would ever have even considered. (I am reminded of WAMUs "Everyone gets approved" TV commerical back in 2006) We allowed our manufacturing base to be outsourced, creating an entire consumer based economy based on service jobs.

Problem is there is no "UNDO" button here, and likely no way to stop the inevitable I am sad to say. We missed the boat on that one about 10 years ago. At this point all we can do is look back and see what we shouldn't have done. The next 25 years are going to be a very rough time for most in the USA I am afraid.

[pnwmom]

7. Credit default swaps are a massive underground system of bets, not regulated

or reported, that are threatening the world's economy. No one knows exactly how many billions or trillions of dollars are held by financial institutions in these instruments, because they are off the books and haven't been regulated. And those who hold them have a vested interest in the failure of companies.

They may have started are insurance against bad debt, but now they are routinely purchased and sold by entities who have no direct financial interest in the underlying properties. They have become primarily a type of speculating, and they threaten the solvency of financial institutions around the world.

[Telly Savalas]

8. That doesn't address the question as to why outlawing them is better than regulating them.