Tuesday, February 2, 2010

Kanjorski Admits There Is A "Growing Bubble In Commercial Real Estate" As S&P Observes Recognition Of CRE Losses Could Wipe Out Banking System

Zero Hedge
Submitted by Tyler Durden on 02/01/2010

In a note released earlier, Congressmen Paul Kanjorski and Ken Calvert stated that they are launching an "Effort Urging Federal Regulators to Address Growing Commercial Real Estate Market Concerns" which will focus on the economic implications of the "deteriorating conditions in the commercial real estate." Luckily, Kanjorski bypasses the spin cycle and calls the repeat CRE bubble by its proper name:
"The growing bubble in the commercial real estate industry has the potential to infect our economy and slow a recovery," said Chairman Kanjorski. "In order to safeguard the businesses operating on Main Street and protect the millions of jobs depending on commercial real estate, the Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses."
Wait? What's that? CRE valuations are fair? Isn't that what Merrill Lynch pounds the table on in each and every REIT research report. Maybe, just maybe, bubble and fair value are synonymous - we are not sure.

Luckily, to provide the correct answer, S&P picks today to release their extended industry report titled: The Worst May Still Be Yet To Come For U.S. Commercial Real Estate Loans. From the summary, S&P notes the following:

So there you go: even S&P confirms that should all losses be recognized all at once, without the aid of accounting and regulatory gimmicks, the financial system is likely entirely underwater, and this is only on account of CRE exposure, which as most pundits have been noting should not be a concern for anyone, as it is all under control. Right. One wonders how many of the other "manageable" risk factors are sufficient to destroy banking as we know it should mark-to-myth be replaced with some representation of reality. FULL STORY

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