CIT’s pending bankruptcy reminds me of a business friend of mine.
By Daniel at 1 November, 2009, 2:57 pm
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He borrowed to buy a warehouse and borrowed again to convert part of the space to an office. His sales to malls and retailers dried up last year. He has not paid his mortgages (first and second) for six months. His lender comes around every month to see if any money is forthcoming. But, my friend tells him nothing has changed. Still can’t afford to make the mortgage payments. Further, he tried to sell the bldg but was recently told by his realtor that he is under water. The value of the warehouse is much less than the value of both mortgages. The banker has threatened foreclosure but has not taken any “official” action. Multiply this scenario by millions around America and you can see the pending crisis that will be unfolding.
Banks hold large tracts of non-performing commercial loans of small to medium companies whose collateral is below the mortgage values. But, they are afraid to foreclose and recognize the huge losses on their balance sheets. Officially, the banks look better than their books and a closer look at their collateral really are. The books show assets or collateral much higher than they really are. This is the stealth nature of bankruptcy. Overnight, they appear to fail when in fact they have been steadily failing over an extended period of time. But, government procedures allow them to keep the hoax going by not requiring a recognition of losses to market value. As they say, “Bad news does not get better with age” This commercial real estate crash is right around the corner and eventually will have to be dealt with. Small and medium size companies employ the majority of Americans.
- DandyDon
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