While a lot of folks are talking about “green shoots”  (maybe it might be green ‘shutes?) the Fed is paying attention to what is happening in the commercial re-finance market.  There commercial real estate debt that needs to be financed is BIG…I’ve seen estimates  ranging from $150 billion to $1.2 trillion.  This article, this morning puts it at $165 Billion.  The problem is that the debt was booked when commercial real estate values were 25-30% higher, i.e. a lot of these loans are upside down to the current value of the asset.  Having resuscitated the residential real estate market to the point of a pulse and a “fog the mirror” breath with low interest rates, the Fed finds itself with no option but to keep the rates artificially low lest they clang the death knell for commercial real estate and it’s lenders.  It’s a dicey place to be.

The problem, in  my mind, is that the economic situation is clouded with the political one.  We live in a political economy, like it or not – it is not a “free market.”  Freer than most, but not without it’s restrictions.  It is reported that the proposed Cap and Trade Legislation will not only kill jobs, but add to the cost of construction and slow the transferability of real estate with new “green” standards that would not be grandfathered.   Couple those concerns with the pending increases taxpayers will face with skyrocketing deficits and you can see why there’s a lot of gloom in the boardrooms of the real estate firms and their lenders.

Perhaps the silver lining in this is that with the Fed forced to keep rates low and the new sense of frugality in the American public, the “folks” with the big credit card bills will be able to pay down their debt sooner.  It’s a knife’s edge we’re on and we can only hope that the folks doing our “bid’ness” in Washington are aware of how much they are scaring us right now.

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