Do the Right Thing for a change…
A commercial real estate attorney speaks up:
Suddenly, and coinciding with the Lehman/Goldman fiasco, the commercial lending markets completely disappeared. Not just a slow down, but a complete and total shut down. Loans for which there were commitments were suddenly pulled. Term loans (most in the development world are for 1-2 years at a time) were suddenly not available for renewal putting borrowers in immediate default, or the lender required severe principal reductions in order to for the borrower to renew - severe to the point of not possible.
I’m not talking about over-speculative developers here asking for a bail-out. I’m talking about fiscally responsible developers, on-time payors with pared down staffs, who wrongly believed that the TARP funds going to the major banks would be put into circulation in the credit markets for new loans and renewals, which are the life-blood of the real estate industry. One bank had the temerity to tell me on a conference call that they were using the TARP funds for acquiring other banks, not for new loans or renewals.
And here lies the problem with the Paulson/Bernacke/Frank plan…they once again trusted the banks “to do the right thing”, (a la Greenspan), without requiring that the TARP funds go right back into the lending stream through the conduit of the banks. I’m not socialist, but I sure would agree for a Bank of US to come out of this mess. This is happening today, and the warnings are clear, and the results will be catastrophic.
Combine this with what I’ve been seeing firsthand - existing consumer credit lines being bullied with sudden zooms of percentage rates, cutbacks of available credit lines and so on - and the answer is that they can pay their bonuses out to the execs who put them in the hole and dividends to their shareholders, while screwing the rest of us - with the money they got from the US Treasury designed to help keep lending and consumer credit going. If you wonder why the cascade of Nobody Buying Anything For Christmas and Massive Layoffs Because Nobody’s Buying, look back at this and think real hard.