Wednesday, August 26, 2009

The Next Big Economic Earthquake

While some Americans are beginning to believe they are recovering from the twin disasters of the mortgage crisis and the Wall Street freeze, there is a new problem just beyond the horizon...a potential crash in commercial Real Estate. The extent of the concern was expressed quite well in a recent interview on Fox Business between anchor Alexis Glick and FDIC Chairwoman Sheila Bair.

Concerning the commercial and residential Real Estate situation: “Commercial real estate is ticking up more. I think later in the year into next year, the commercial real estate losses are going to be a much bigger factor. We’ve known it’s been coming for some time—there’s not a whole heck of a lot we can do about it.”

“The more traditional commercial real estate loans are showing some distress and that is derivative of the economic situation, so we will have some time working through that and I think it will be a big driver for bank failures in the next year."

On the rules that the FDIC put out yesterday: “They are good rules. I think there are some issues about timing because a s you know the industry is still under some distress…I think the issue is more of timing as opposed to whether the rules are the right thing to do. If we’d had them a few years ago, there would have been more capital in the system, so it would have been nice to have it back then and we’re doing the right thing now although the timing is troublesome.”

On economic recovery: “As the economy improves it will take a bit longer for the banks to fully recover, but we have some challenges ahead. They’re manageable and we’ll work through them.”

Can the FDIC cover the cost of bank failures? “We have a lot of cash—we have $22 billion cash on hand to cover the cost of failures.”

On the common ground between herself and other regulators: “We all agree that we need to end ‘too big to fail’ and we need a resolution mechanism that will allow these even very large institutions to be closed down and for shareholders to take losses as part of that process.”

Funny how the hero of 2008 was "too big to fail" is now the demon of 2009. I think the "average joe" could have forewarned the geniuses of Wall Street and DC that government wasn't the solution to our economic crisis.

View Glick's interview here.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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