Strike The Root Blog

So far the news about the real estate bubble has focused on sub-prime home lending of which we still have only seen the tip of the iceberg.  Now the concern is spreading to the commercial lending market primarily due to the “private equity” lenders and leveraged buyouts of those lenders.  This is piling huge amounts of debt on top of each other with lots of fees to all the smiling faces assuring everybody not to worry.  A good article on this is at: http://www.costar.com/News/Article.aspx?id=89A8C944268D5067A7A267F25A20754A&ref=100

A sample:

We could be on the verge of a debt bubble, said the source. “I think lenders are accepting more and more risk either through lower pricing or worse credit/terms simply to maintain volume and market share. This is kind of scary.”

Peter Tobin, director of Sales & Trading for boutique investment banking firm Mission Capital Advisors LLC, agrees. “There has been so much private equity money, CDO money, CMBS money chasing after assets that yields have been kept low and less money is made on riskier transactions,” he said. “What we have seen and heard is that individuals at institutions are more concerned about meeting quotas on putting money to work today than the long-term profit of a transaction.”

 
The pollyannas point out that the default rates have been low, but this is because, like the residential market, “values” were increasing and lenders were happy to keep lending them more money.  But the “values” only increased because of the easy credit.  The next 12-24 months will see a reverse of this trend.

When this pyramid scheme collapses it will get ugly with more calls for state intervention and regulation of capital markets.  There will be show trials for private lenders and support scapegoats to root out the ”fraud” so that “it never happens again.”  Do you think anybody connected to power will suggest striking at the root of the problem: U.S. Government debt and fiat credit money creation by the Federal Reserve?  As the Mogumbo Guru would say: Hahahahahahahaha….