If It's Too Good To Be True ...

Grandma had a saying ... if its too good to be true, than it probably isn't. For the last few days Turbo Tax Timmy has been running around telling anyone who would listen, that the banks are healing. Perhaps this is one of those misuses of statistics that the NAR is so fond of.

Unless you have your head buried in the sand, there is no way you could possibly believe that we are in recovery. There is a massive wave of Alt-A and Option ARM resets just a few months away.Then there is commercial real estate, the proverbial "other shoe" that is just waiting to drop. Nobody who should have known bettter, could foresee the failures in residential real estate. Its stands to figure that same lack of foresight will be dogging commercial real estate. As everyone’s home equity piggy bank dries up, as company's lay people off there will be decreased demand for Abercrombie clothes, vacations, dining out, gourmet junk from stores like Williams Sonoma, Sony big screens and a whole host of other consumer goods, which as we have seen, has fed back on itself to perpetuate even more economic downturn. If those stores aren't making money, the chains will shut them down or the chains will just go out of business leaving real estate investments swinging in the breeze. The chart below shows that delinquencies are on the rise in all facets of commercial real estate. So, my question to the Secretary of the Treasury and his MA from Johns Hopkins is this ... Are things really turning around or are you just trying to will a recovery with a nice bouquet of flowers while whispering sweet nothings in everyone’s ear?

Nothing being the operative word. This blogger is not buying this idea that we're in recovery or even some contrived pre-recovery phase. Best case, the carnage is taking a break, because there are tens of thousands of homes which are due to be foreclosed. The only reason they haven't been foreclosed is because the President imposed a moratorium on foreclosures which just ended. The banks are hiding somewhere in the region of 600,000 homes. That’s six hundred thousand homes that banks will need to liquidate, thus adding additional inventory to the already bloated inventory of homes on the market. As noted above, there will be more foreclosures starting later this year and all through next year as the holders of shifty loans on homes they can't afford begin to face the music of a rate recast with few options for refinancing. Lastly, there is that other shoe. There are some people placing that the bank's exposure to commercial real estate losses as high as $1.8 trillion. Somehow, I don't think the bankers had the foresight to get coverage on their commercial real estate holdings from AIG, like they did with their residential real estate. There will be no intermediary to help the government backstop the commercial real estate losses, like there was with the residential real estate paper that went bad. It was easy for banks to report profits with billions in TARP dollars backstopping them. What are they going to do when the commercial paper goes bad?