Why Wait Until Tomorrow?

Many commercial real estate owners are saying, "Why wait until tomorrow what we can do today?" So, they are walking away from their properties. Click here to learn more.

I'm not going to write about the moral or immoral implications of walking away from homes or commercial real estate if property is "underwater"--meaning, worth less than the mortgage. Mainly, it has nothing to do with morality. It has everything to do with one's own balance sheet. And, today, an owner's balance sheet is saying "save money."

So, why wait until tomorrow what they can do today? Meanwhile, the U.S. Government says, "Why wait until today what we can do tomorrow." In 2009, Ben Bernanke and Tim Geithner exposed their "toolbox" full of "tools" that include printing money (i.e. giving banks free money), accounting manipulations (i.e. mark-to-model from mark-to-market) and, of course, the old "pretend and extend" on those toxic, undervalued assets.

One recent tool to come out of the toolbox was on Thursday, the day before Christmas, when Treasury announced it took off caps that limited available capital to Fannie Mae and Freddie Mac at $200 billion each. Obviously, those loans are bleeding losses over there.

While the Fed's strategy is to "delay and pray," paint a pretty picture, hope for valuation returns sooner than later, gamble with U.S. currency expansion within a deflating economy to stimulate economic growth among 10 percent-plus unemployment, they hope that human nature acts against nature to nurture themselves excessively (as they have in the past thirty years).

Mish's Global Economics Trends Analysis describes the deception well in The Most Redeeming Feature of Capitalism is Failure. It says that somebody has to fail to have capitalism.

However, property owners who walk away will stop the party right now...or will they?

If owners say, "Go ahead. Foreclose. It's not worth it." Extend and pretend is over. Banks write down the losses now.

Normally, that might be the case. But the hubris and arrogance of Bernanke and Geithner, respectively, will not allow this to happen. Here's a scenario for 2010:

XYZ Bank: They walked away from the property. We have to take it back. Now we have to write these loans down as losses.

Bernanke: No you don't.

XYZ Bank: Yes we do. We have to foreclose on it.

Geithner: No you don't. We have a whole set of tools that will help you out.

XYZ Bank: Tools?

Bernanke: Yes. I'll print more money so you can keep it in capital reserve. When the value returns to this property, then you won't need to worry about it.

XYZ: But the value is never going to return to this property. It was well overinflated.

Bernanke: The value will return, don't worry about it.

XYZ Bank: Sure, like in 2020!

Bernanke: Don't worry about it.

Geithner: Look--just do that, we have accounting rules so you won't have to write this down. Everyone will still think your bank is completely solvent. Plus, with all the free money we're giving to Wall Street, somewhere in the range of $18 trillion, we're propping up the market.

FIVE YEARS LATER--A run on the market.

Bernanke getting trampled.

Bernanke: Don't panic. Everything's fine.

(Or, he could be like Alan Greenspan in Redskins owner Dan Snyder's box during the Dallas game last night stuffing his face while food banks expand following the burst from the bubble he helped to create).

Geithner: You fucked up. You trusted us.

(Just a reminder, Tim. The new year...it's about that time to get ready to pay taxes. Remember? You might want to just hire an accountant this time).

Have a Happy and Healthy New Year in 2010. Let's hope we do see declining unemployment and liquidity in the system from the Animal House--I mean, White House crowd. Maybe Santa can bring that to the U.S. by next year....I don't think any real person can do it.