The Next Financial Bubble

February/01/2009 3:31AM
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It’s called CMBS. Most of us have never heard of CMBS. But, then who knew that much about how sub prime residential mortgages were being securitized into all types of investments and scattered around the world? CMBS is the commercial mortgage version of residential mortgages. Estimates say there is upwards of $800 billion floating around. 

If you are keeping score, we have written about the credit card bubble, the pension plan bubble, the credit union bubble,  and now the CMBS bubble. These bubbles have yet to burst.

Commercial mortgages are starting to go bad. Probably no surprise in this economy. We’ve all seen the empty stores. A new upscale hotel in Scottsdale just closed after being open less than a year. A new $400 million amusement park in Myrtle Beach closed after less than a year. Someone is holding the bag on these investments.

Credit Suisse announced that a $209 million commercial mortgage for Westin hotels in Tucson, and Hilton Head and a $125.2 million loan for Promenade Shops at Dos Lagos in Southern California were all transferred this month to a special servicer:’ due to imminent default”.

TARP hasn’t worked to free credit markets because banks have too many bad loans still on the balance sheet. This problem is just starting to hit the fan. Credit card problems are now surfacing. Now, we have CMBS issues. How bad is this situation? Both the credit card and CMBS problem could be as much as $500 billion each. 

The next piece of TARP, or tranche, a new word we learned from Henry Paulson, won’t fix it. There will be a call this year for a new version of TARP to deal with these two new issues. That will be on top of  the $850 billion dollar stimulus package. 

It ain’t over until the fat lady sings, and she’s still got a lot of singing to do.   

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