The Warren Report

And now, I sum up the 190 page PDF of the Presidential Oversight Report on the economy as presented by Obama adviser and TARP oversight head Elizabeth Warren:


Seriously.  Steven D takes a look:

The Congressional Oversight Panel's February oversight report, "Commercial Real Estate Losses and the Risk to Financial Stability," expresses concern that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks. Commercial real estate loans made over the last decade - including retail properties, office space, industrial facilities, hotels and apartments - totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present "underwater," meaning the borrower owes more on the loan than the underlying property is worth. While these problems have no single cause, the loans most likely to fail are those made at the height of the real estate bubble.

I've been talking about the looming commercial real estate meltdown for over a year now.  It's depressing to see that my take on it was tame by comparison:

This report has outlined the risks posed by the current and projected condition of commercial real estate. A second wave of real-estate driven bank difficulties, even if not as large as the first, can have an outsize effect on a banking sector weakened by both the current crisis and by the economy remaining in a severe recession. In the same way, even if smaller absolute numbers are involved, a second wave of bank losses and defaults can have a serious effect on public access to banking facilities in smaller communities, lending to small business, and more importantly, on confidence in the financial system. The system, as noted above, cannot, and should not, keep every bank afloat. But neither should it turn a blind eye to the impact of unnecessary bank consolidation. And the failure of mid-size and small banks because of commercial real estate might even require a significant recapitalization of the FDIC with taxpayer funds.

Hooray!  Even more bailouts!  Even more consolidation!  Even more empty storefronts, mall slots, office buildings, executive parks and strip malls!

Folks, eventually we get to the point where enough individual systems fail that the existing system cannot reboot itself.  We're getting closer to that point daily.