Posted on 07/08/2010 7:35:19 AM PDT by blam
Here's Why Commercial Real Estate Hasn't (Yet) Been A Disaster -- But Probably Will Be
Henry Blodget
Jul. 8, 2010, 7:44 AM
Most experts agree that one reason Japan's economy has taken so long to recover from its bubble crash is that Japan's banks spent the first decade in denial.
Specifically, when loans went bad, the banks didn't write the loans off--they lent the bankrupt borrowers more money so the borrowers could keep paying interest on the original loan. Thus, the bank and the borrower could pretend that everything was hunky dory.
Except it wasn't. Because the borrowers were bankrupt. And, eventually, everyone figured that out. And, finally, more than a decade into the collapse, the banks began owning up to reality and writing off some of the bad loans.
This practice, "extend and pretend," isn't always a bad strategy. If the economy recovers strongly and quickly, sometimes banks can make more money (or at least lose less) by working with with troubled borrowers who will eventually make good on their debts. This is what most of the ideas to "save the housing market" have been about--encouraging banks to restructure mortgages to keep borrowers in their homes. And sometimes, it actually works.
[snip]
(Excerpt) Read more at businessinsider.com ...
ping
Good article!
The problem is when the sh!t hits the fan, once again the taxpayers will bail out the “too big to fail” banks.
Classic moral hazzard.
The ones with no signs are owned by large national real estate firms, there are signs on local properties. An example is the old Circuit City building, which has been sitting empty and no contact information on it now, right after it closed there were for sale or lease signs on it.
Yup. We have those like that too...and houses, just sitting vacant no signs, nothing.
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