Big New Bubble About to Burst

October/07/2009 16:26PM
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I have written repeatedly in this blog that the commercial mortgage bubble is huge and about to burst. Big is $3.4 trillion. Over 50% is held by banks, not spread around the world in securitized investments like the residential mortgages were. Banks have been slow to take losses on this paper. Some are collecting interest only. Bank examiners are stepping up audits on these loans.

Does any of this seem familiar? While the FDIC wants banks to prepay the next three years of their dues to the FDIC since so many banks are failing, this is another card fluttering in the big house of bank cards. Bubbles bubble, then burst. This bubble is bubbling.

According to the WSJ, banks have only 38 cents set-aside for these loans. In 2007 that was $1.58 for every dollar.

The Congressional Budget Office said this week the deficit for 2009 will be $1.4 trillion. The same article said that losses may be as high as 45% next year.

Add to this the data that shows that office rents are falling at the fastest pace in more than a decade due to vacancies.

Who will get the blame for all this? How long can the Fed and the Administration keep a lid on this? How many banks will fail and what will be needed to fix this problem?

What will the deficit be for 2010?

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