Friday, April 17, 2009

Surprise Suprise - Federal Reserve Succumbing to Commercial Real Estate Lobbying

Indeed word now leaking that the Federal Reserve is succumbing to the commercial real estate lobbying group and instead of doing 3 year loans they will now do 5 year loans to some of the most financially well off in the country.

  • The U.S. Federal Reserve is considering expanding one of its lending programs to include commercial mortgage-backed securities with terms longer than three years, a Fed official said on Friday. The investment community has been pushing for the Fed to accept securities with a five-year term, but the central bank is concerned about holding longer-term assets on its balance sheet because that can make it more difficult for it to pull back on lending once the economy recovers.
  • Intense behind-the-scenes talks between the Fed and the commercial real-estate industry over the matter are emblematic of the delicate position the central bank is in as it tries to revive markets. "In our meetings with the Fed, they said 'we get it' that the five-year term is of paramount importance to CMBS investors," said Christopher Hoeffel, president of Commercial Mortgage Securities Association, a trade group. (I love how "trade groups" now have access to the Federal Reserve strategy)

I cannot stress enough that the Federal Reserve balance sheet is supposed to be for the safest and shortest term of obligations but has now turned into a SIV akin to what Citigroup was hiding that caused it to crumble. And it's only beginning. So we have your car loans, student loans, personal loans, commercial mortgage loans, mortgage loans, credit card loans all on the balance sheet - during the deepest recession in our life sitting as the taxpayers obligation - and all will degrade in quality as more and more consumer lose jobs and default, and the commercial property market falters. I am laughing at how the Fed which is supposed to only step in for "systematic" failure is now the punch bowl for almost anyone with connections to now take from. Oh yes - the banks have a ton of commercial mortgage loans on their books and they must be saved from their bad decisions. They are important to the system. Your bad decisions? You have to fix those yourself - you are not a bank. You are not important to the system - except for your tax dollars (please keep sending those in)

But this is not surprising in the least as we've been discussing it for months and as I wrote yesterday morning the bankruptcy of General Growth (GGP) could now be spun "positive" because it forces the Federal Reserve to support yet another industry. Can't fight it anymore - the government does what it does and the peasants can only smile from afar in our current form of "representation".

Just as all the warning signs were shouted out about the dangers of what Fannie, Freddie had become were ignored for years.... until it came falling down -- so will be ignored the shouting about the enormous losses the Fed will be taking quietely in the night in a few years while no one is paying attention. I guess they can just print money to replace the losses they will take; thankfully the banks or fellas who made these disastrous commercial loans won't have to take the pain. Indeed they are being rewarded. Reverse Robin Hood strikes again.

I guess this leaves retailers as a last place to short, unless the Fed decides it needs to step in and support individual retail chains because they are "systematically" important as well. If so, we'll have to move to something else that is not under the rogue Fed's shooting range. Can't touch insurers, can't touch commercial real estate, can't touch banks - Nanny State is all over it.

It truly is amazing how much is being done outside the reach of our regular 3 branches of government. There is a whole "other" government in the Federal Reserve that answers to no one. And most Americans appear completely oblivious at what is going on.

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