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Bernanke Terrified by Commercial Real Estate Market Crash

Housing-Market / US Housing Jul 22, 2009 - 02:23 PM GMT

By: Mike_Shedlock

Housing-Market

Best Financial Markets Analysis ArticleWhen a member of the Fed admits a problem, especially chairman Bernanke, you can rest assured the problem is far worse than what they admit.



Such is case today as Bernanke Says Commercial Property May Pose Risk for Economy.

Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.

Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S.

It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.

U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market’s peak, Moody’s Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month.

“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”

One of the main issues for the industry is that the market for debt backed by commercial mortgages “has completely shut down,” the Fed chief said yesterday.

Bernanke Terrified Over Commercial Real Estate

Given the commercial mortgages have "completely shut down", does anyone buy Bernanke's line that he is "somewhat concerned"?

Here is the real deal: Bernanke is terrified and so is the rest of the Fed.

Bernanke Seeks More Power

Inquiring minds are reading Bernanke Says Consumer Protection Should Be Formal Policy Goal.

Federal Reserve Chairman Ben S. Bernanke said consumer protection should be added to the Federal Reserve Act as a formal policy goal along with low inflation and full employment.

“We were not quick enough, we were not aggressive enough to address consumer issues earlier in this decade,” Bernanke, 55, said in response to a question from Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee.

“My recommendation to you to consider, Mr. Chairman, would be to ask whether there are steps that could be taken to strengthen the commitment of the Federal Reserve,” Bernanke said on the second day of his semiannual testimony to Congress. “One would be to put consumer protection in the Federal Reserve Act along with full employment and price stability as a major goal of the Fed.”

Consumer Protection Is Admirable Goal

I am strongly in favor of consumer protection. And the best way to achieve that goal is to abolish the Fed.

The ONLY source of inflation is the Fed (and fractional reserve lending), and the Fed has proven without a doubt they do a piss poor job of managing it, managing credit risks, managing interest rates, and managing "full employment".

Now the Fed seeks power to mismanage consumer protection as well.

Bernanke Canonized

In spite of the horrendous bubble blowing policies of the Fed, and in spite of the fact that the Fed is THE problem, today we see Bernanke has been canonized as a saint.

Please consider Bernanke Gets Top Marks as Investors Say Economy Is Past Worst.

Sixty-one percent of investors surveyed in the first Quarterly Bloomberg Global Poll say the world economy is stable or improving and almost 75 percent take a favorable view of the 55-year-old chairman. By almost a three-to-one margin, they say Bernanke has earned another four-year term when his current one expires in January.

“He’s the best, maybe around the world,” said Wallace Lin, an investment manager with Euro Asset Management in Hong Kong, who participated in the poll. Investors ranked Bernanke higher than his counterparts at other major central banks, including European Central Bank President Jean-Claude Trichet.

The vote of confidence strengthens Bernanke’s hand as he faces congressional criticism that the Fed overstepped its authority by helping to rescue failing financial institutions in the midst of the crisis. It also gives his bid for another term a boost. President Barack Obama has praised Bernanke’s performance atop the central bank without saying whether he wants him to stay.

Fed 100% Guaranteed To Produce Boom-Bust Cycles

The question of the day is: How did Bloomberg acquire their seemingly never-ending list of economic buffoons to quote?

Such questions aside, the only way to have sustainable "full employment" over time is to let the market set rates, and the markets and not the Fed or Congress to pick economic winners and losers .

The Fed is 100% guaranteed to produce boom-bust cycles such as the one we are in now. Greenspan spawned this debt bubble in debt and housing by slashing interest rates to 1%, while ignoring asset bubbles everywhere. This was on purpose, not by accident, to bail out banks who were in problem loans to Latin American as well as imploding dotcom companies.

Bernanke went along 100% with Greenspan, not once casting a dissenting vote. After he was made Fed Chairman, he failed to spot glaringly obvious problems as they were developing.

Here are a few points from Housing Update - How Far To The Bottom?

  • In 2005 Bernanke said there was no housing bubble to bust. "[Housing] increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.
  • Less than two years ago he said things were contained.
  • In January 2008, he said housing would improve by the end of the year.

For those fine efforts, Bernanke was canonized.

We need "protection" all right, protection from the Fed.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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