Everyone with hat in hand now. Just think when priciple reductions in mortgages become available, wham!!!

I'm switching it from "we're all subprime now"

to "we're all whores now"

.....

Something about moral hazard and slippery slopes come to mind - but that was a few trillion in bailouts ago.

No more bailing out these bozos. CR is right this time. CRE defaults will not affect jobs and I sure as hell do not want to bail out the Donald Trumps of the world.

Mortgage re-defaults rising with no sign of slowing
Housing crisis worsens as economy weakens
| Reuters

I do not see the arguments for any of these bailouts. This is just as insane as any of the others.

<i>Heavy equipment maker Caterpillar Inc said on Monday it would cut white-collar pay by up to 50 percent and offer buyouts to some employees as it looks to cut costs. The news came just days after the blue-chip industrial company said it planned to lay off 814 workers at its Mossville, Illinois, engine assembly. </i>More Inflation!

It stands to reason that everybody can't bail everybody out.
But what has reason got to do with any of this stuff?

Ot.. does BB really think he can devalue like FDR?? with a reserve currency??

Did Mort Suckerman sign the letter? He and the boys at GS have the record for paying the most ever for a building right at the peak.

There is a quote of him saying NYC rents will never go down, not building any more land in NYC.

And we should feel bad for him because Madoff nicked his charity for $30 million or so.

Why CRE sucks - an anecdote:

I have one last biz trip* I have to go on before shutting down for the year - travel to the Milwaukee/Chicago area. I call a 'mid-priced' hotel in the area looking for a room. The lady says "that will be $129/night".  I tell that is too much and am about to hang up... she jumps back in and says... "But, but, but that's our usual Holiday Rate - is there a problem - we'll reconsider." I tell her "One - I'm not on Holidays yet and Two - that's still too much even if I was." She comes back and says "How about $70?" I tell deal done.

Now I've been staying in a lot of these rooms over the years - they will easily cashflow $70/night if they fill the place halfway full. By that I mean they cover all their direct operating expenses and still have something left over to put toward 'indirect & profit'. But if they have a lot of indirect (as in did the CRE investors wildly over pay for the assets and did it with leverage - probably the case) then they are dead men walking.

Leverage and overhead kills unless you can get one of 'zee bailoutz galore'.

*A major OEM we are trying to do work with has a key supplier failing on them - OE looking to re-source their products into one of the companies I work with & visiting us tomorrow. When Sr Supply Chain Exec's straight from 'corporate'  are out looking at factories a few days before Christmas you know somebody is going to get a lump of coal in their sock. This is happening all around the world right now - another story that isn't getting told - yet.

Why don't they just go to the Fed and ask for a credit facility?

I'm of the opinion that the decisions made by our fearless leaders so far have been the easy ones.

We're rapidly approaching the point where they have to start making "tough" decisions. Currency devaluations, wealth confiscation, population controls.

It will soon be readily apparent that monetary policy and bailouts cannot stem the tide. In case people don't already realize...this story becomes unpleasant during the next chapter.

In the previous thread I argued for buying scams in Asia in 10 months time. Let me postpone that to 20 months.

My apologies.

Come, come now, CR's there's plenty of arguement for a bailout. With all the unemployed, and homeless, what finer digs than a corporate office complex....lot's of room, the fifty first floor view...The fed just needs to remember to add a doorman....
Lending facility, TFTDLJNGAGAFTNFYTYB...Truly For The Disadvantaged Laidoff Jobless Nonworking Guy and Gal in America For the Next Fifteen Years Thank You Bush.

Dryfly, nice observation. Many of these limited service hotels are designed to CF at ~50% occupancy ... but unfortunately many of them took on 80%+ LTV loans in 2005-2007. Historical standard LTV average is around 65%. Demand drop-off nationwide since Oct has been vicious.

@dryfly writes:

Why CRE sucks - an anecdote:

I have one last biz trip* I have to go on before shutting down for the year - travel to the Milwaukee/Chicago area. I call a 'mid-priced' hotel in the area looking for a room. The lady says "that will be $129/night". I tell that is too much and am about to hang up... she jumps back in and says... "But, but, but that's our usual Holiday Rate - is there a problem - we'll reconsider." I tell her "One - I'm not on Holidays yet and Two - that's still too much even if I was." She comes back and says "How about $70?" I tell deal done.

Now I've been staying in a lot of these rooms over the years - they will easily cashflow $70/night if they fill the place halfway full. By that I mean they cover all their direct operating expenses and still have something left over to put toward 'indirect & profit'. But if they have a lot of indirect (as in did the CRE investors wildly over pay for the assets and did it with leverage - probably the case) then they are dead men walking.

So, when they get bailed out, that's good news right?

I'm kinda fuzzy about the good/bad thing anymore.
Jett Rink | 12.22.08 - 11:32 am | #

It's all good - that's all you really need to know.

"I don't see the argument for a bailout"

How out of the loop your thinking has become, CR. The proper closing comment should be more on the line of:

"Thank goodness Ben and Hank are here to save these poor millionaires."

Now go sit in the corner until you are ready to say I'm sorry...

http://www.commercialpropertynews.com/cpn/content_display/finance/cmbs/e3id78469d8113685398755fd7239374fee

CMBS Delinquencies Speeding Up: Fitch
Dec 22, 2008
By: Paul Rosta, Senior Associate Editor

Back in January 2008, long before the capital markets took their astonishing twists, Fitch Ratings made a sobering prediction: By the end of the year, its CMBS loan delinquency index would be double or triple the 0.28 percent recorded at the end of 2007. Fitch’s crystal ball turned out to be right on the money. On Friday the ratings agency reported that CMBS delinquency reached 0.64 percent for November. At this pace, Fitch projects that CMBS delinquencies could hit 2 percent by the end of 2009.

...

Although growing problems point to more CMBS delinquencies in the retail sector, other property sectors are hardly off the hook. “Fitch anticipates that the deepening recession will lead to declining fundamentals across property types for 2009,” the firm’s CMBS group leader, Susan Merrick, noted in a statement Friday. For example, slowing business and leisure travel spells trouble for the hospitality industry. In November, the volume of delinquent CMBS hotel loans stood at .48 percent.

If I reach a breaking point and MUST fall behind on some payment, what should it be? My thought is to stay current on the mortgage and let the CC bills lapse, even if it takes me to the point of a credit-card BK.

Drowning J6P | 12.22.08 - 11:41 am | #

I'll take the bait.   I wouldn't default on anything, that is unsound financial advice.  If a person were forced to default on SOMETHING, however, I'd suggest the mortgage.  You have SOME chance of the gubmint stiffing your neighbor to cover the nut.

even though their properties have strong positive cash flow.

No way do the 2005 through 2008 deals done in the NYC metro area have "strong" cash flow going forward.

Every deal I looked at was negative/zero cash flow and was based on increasing future rents or increasing occupancy after a renovation.

Another thing. A lot of banks held onto the junk CRE paper. Remember Lehman. Deutche Bank is a big bag holder too.

I'm switching it from "we're all subprime now"

to "we're all whores now"

Might want to switch that to "we're all tax slaves now".

--
But the treasury money isn't going to the voters, it's going to the corporate interests that fund the fraudsters, I mean, the lobbyists. Jas is right, we know what's going on, and we don't do anything about it."

trader walt,

Thank you, Walt. Sometimes obvious isn't all that obvious.

Jas

So on commercial real estate they usually don't evict the tenants when the property is foreclosed. You just get new management who tries to fill the empty spaces or improve rents, right?

That would seem to me to imply higher recoveries/cashflow than in single family homes, where stupid banks usually evict renters.

And again, the unintended consequence; municipal revenues.  Bed taxes have been easy for municipalities to impose seeing as those paying are by definition not voting.  12-15% is not unheard of.
Rob Dawg | Homepage | 12.22.08 - 11:55 am | #

Dawg this was in 'rural' small college & factory town Missouri - they didn't do it for tax revenue like in Cali - they were just stooopid. This is a part of the world where there is no city gubbmint interference - no permit hurdles to cross - ask for a permit and ye shall receive. The city has a number of large & growing factories, low unemployment and VERY low city expenses. But even in totally free market BOOYA environments stooopid investors can make stooopid mistakes. This was a case in point. I hope they don't fail because the other hotels in town all have cooties.

But I understand your theme - it applies in larger venues out here (Twin Cities, Chicago) as well as it does in Cali.

--
"to "we're all whores now" Might want to switch that to "we're all tax slaves now"."

Charles Kiting,

Copycat!

Jas

Drowning J6P.

Plan A:
1. Work like mad. Make sure none of you get fired. Work overtime. Work weekends.
2. Sell everything you have. I mean absolutely everything. Keep cash and gold coins.
3. Contact bank/financial planner to re-negotiate payment schedule.
4. Consider default. Stay. Save like crazy. Then rent.

Plan B:
1. Contact a friend abroad or in another state. New Mexico, Costa Rica, whatever. Look for a place with lower cost of living.
2. Sell everything you have.
3. Move there. Find a job. Start a new and frugal life.

There was no argument for a bailout for anyone. Idiots. When will the US formally claim bankruptcy?

Here is your Monday Purchasing Biz Report ... get ready some really bad electronic muzak.

Summary - prices for components, raw mat'l & services are mixed - these are from the guys who buy the stuff and have a pretty good feel where it's going.

--
"To quote Nancy R: "Just say NO"

Dirk van Dijk,

But who is listening, Dirk?!

Don't ask, can't hear!!

Jas

Leona were alive today she'd say "Bankruptcy is for the little people."

I'm still short vanity and long free time. It's the trade of the century. Soon it will be a crowded trade too.
Angry Saver | 12.22.08 - 12:23 pm |

Copy that - it's the only 'tax revolt' that won't put you in jail. Think of it as a peaceful sit down strike - under a shade tree - with a drink in hand.

dryfly--
What is OEM?
Thanks
g

This bust still has legs. All the talking heads say the market is forward looking, yet they ignore that the recent 40% drops portend woeful times ahead.
Angry Saver | 12.22.08 - 12:26 pm | #

Markets are 'forward looking' until they aren't. It is based on the same theory as SPC charting in mfg or 'tech analysis' in investing... the tools are only forward looking as long as the future is based on the same assumptions and rules as the past [in SPC lingo they say "the process is stable"]... Once 'unstable' then looking forward is really just 'guessing'. From that point on they are forward looking into a rear view mirror.

More money was lost in the period from 1930 - 1932 than was lost in 1929. This includes stocks, bonds, commodities, and real estate.

But don't worry, the market is forward looking (except for the recent 40% fall). Besides, it can't possibly get any worse, the fed is taking charge.

The same fed that didn't see the largest credit bubble in history.

I asked santa when my back swan was going to be delivered.

Dryfly,

I keep saying it. We're at an inflection point. History in the making.

The so-called experts keep projecting the recent past into the future. Big mistake.

OEM = original equipment manufacturer

What is OEM?
giacutter | 12.22.08 - 12:30 pm | #

Original Equipment Manufacturer.

Think Ford, GM, Honda, Boeing, Whirlpool - etc. They make the products that actually are 'consumed' by the public. The levels below that are designated by 'tiers'...

Tier One - engines,  transmissions, etc.
Tier Two - pistons that go in th eengine, gears that go in the tranny
Tier Three - the castings & forgings the Tier Two's use...
Etc. - all the way back to the mines & well heads.

Thanks, RGA and dryfly.

BTW, the longest year of my life was the summer I spent in central Missouri.

I don't full understand money-markets but it seems pretty risky if they are investing 10 years out with customers able to call money on demand.

Less than two months ago, we were witnessing a run on money market funds.

Do you really think that would have happened if their assets were truly AAA? Even the mighty GE couldn't roll over their short term paper without the fed guaranteeing it.

Google "whislte jacket" to see what kind of illiquid crap money markets are holding.

though don't know where 'history' will push us.

The details are unclear, but I'm quite certain that the fed will not lead the majority to prosperity. Just the opposite imo.

--
David Rosenberg:

“Homebuilders pressuring Washington for a bailout -- As the bailouts pile up, we thought that the best read of the weekend was from the Weekend WSJ – see page W1 (“Is the Medicine Worse than the Illness?”). And now we see that the homebuilders are pressuring Washington to provide first-time homebuyers with a $22,000 tax credit. It’s as if there is now a pervasive belief that there is a bottomless pit of cash ready to be put to use to correct all the excesses of the past decade from financials, to autos to builders…

“Gold will be an important hedge against policy missteps -- Gold, in our opinion, is going to be important hedge against such policy missteps in 2009; and not only gold, but security of supply and government procurement policies may end up putting a floor under the beleaguered commodity complex earlier than a lot of folks think. As the chart below attests, there is a pretty good link between government spending as a share of GDP and the CRB index, because governments don’t buy clothing or jewelry but they do buy “material”.”

Enjoy!

Jas

bearly writes:
I asked santa when my back swan was going to be delivered.
bearly | 12.22.08 - 12:33 pm | #

Bearly, I think Santa would probably respond that he already dropped off your black swan: his name is Madoff.

With the Presidentials cadidates we have had America is doomed. And most Americans are screwed.
Jas Jain | Homepage | 12.22.08 - 12:33 pm | #

Right on.

It’s as if there is now a pervasive belief that there is a bottomless pit of cash ready to be put to use to correct all the excesses of the past decade from financials, to autos to builders…

Time for the "Lord Please Give Me Another Real Estate Bubble, I Promise I Won't Piss It Away Like Last Time" bumper sticker.

Anyone have an answer as to why major brand money-markets are paying 2.09% (about the same as 10 yr T-Note)? I don't full understand money-markets but it seems pretty risky if they are investing 10 years out with customers able to call money on demand.

They're holding GSE debt, which is still paying about 2%. Why is GSE debt paying 2% more than Treasury debt when it's basically the same thing now? Yet another bond market insanity, I guess.

Curmudgeon | 12.22.08 - 1:16 pm |

I give this post a 9.7 out of 10.0.

BHO's middle name was never mentioned once. And, BHO nicotine habit was never mentioned once. That's some pretty good propaganda!
oDKo | 12.22.08 - 3:08 pm | #

His middle name is relavent? How? His nicotine habit affects the nation in what way? There was more than enough irrelavent stuff discussed in the campaign, and you are worried that there was not enough? Talk about a born and bread dope!