The Next Mortgage Problem

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Could the mortgage on the building that once housed your local Circuit City be Ground Zero for the next financial crisis? A new report (PDF) by Elizabeth Warren‘s Congressional Oversight Panel, which is in charge of monitoring the bank bailouts, says “maybe.”

Warren’s panel warns that a rapidly approaching “wave” of loan losses on commercial real estate (CRE) “could jeopardize the stability of many banks.” That’s because $1.4 trillion in CRE loans need to be refinanced between 2011 and 2014, and according to the panel “nearly half” of them are “underwater”—that is, the mortgage-holders owe more than the underlying property is worth. If the owners can’t refinance, they’ll probably default. That’s bad:

When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities.

There’s more bad news: it’s community banks, not the Wall Street giants, that are most vulnerable to CRE defaults. And the panel doesn’t rule out the possibility of bailing out some of them:

There are no easy solutions to these problems.  Although it endorses no specific proposals, the Panel identifies a number of possible interventions to contain the problem until the commercial real estate market can return to health. The Panel is clear that government cannot and should not keep every bank afloat. But neither should it turn a blind eye to the dangers of unnecessary bank failures and their impact on communities.

It’s a heck of a dilemma. No one wants to see more bailouts—and they’re probably politically impossible, anyway. But if community banks fail, the big banks will become even more powerful and the financial system will become even more vulnerable to catastrophic failure. What a mess.

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Truth #1: The chaos is the point.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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