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Friday, April 3, 2009

… and its gone.

Though the government is flooding the system with liquidity, there are still major gates to this capital actually reaching the people that need it.  While fixing the banks is an understandable response, the underlying problem of deteriorating creditworthiness remains.  Those with cash seem content to try to ride the cycle out – the environment remains extremely risky.  In some respects, the cash rich see there is a mass conspiracy of hope that things will get better.  The real strain, though, is not on people with cash.  It’s on people and companies who are levered up in debt… and these are exactly the people who are NOT being offered loans.

Just a few of the scary signs out there:

Commercial property defaults are on the rise.

Delinquent loans climbed 43 percent in the first three months of this year to $65.9 billion, according to data from New York-based research firm Real Capital Analytics Inc. That’s up from $46 billion at the end of 2008.

A total of 3,678 U.S. properties are now listed as in distress by Real Capital. Commercial real estate values have fallen at least 30 percent since their 2007 peak and may decline another 11 percent this year, increasing the number of properties that may be repossessed, Deutsche Bank AG’s real estate unit said in a March 25 report. AREA Property Partners Managing Partner William Mack said today lost value may already stand at 33 percent.

Why would you loan money to underwater, overleveraged borrowers in a still declining market?

Student loan default rises are taking off.

NEW YORK ( -- An increasing number of students aren't making their student loan payments according to the Department of Education.

According to the recent data, student loan defaults are up to 6.9% from 5.2 percent a year earlier. We're talking here about federal loans, not private student loans.

Sallie Mae, one of the biggest private student loan providers, is reporting that private student loan defaults are up to 3.37% in 2008 from 1.47% in 2006.

The job market is pretty bad – its unlikely these student loan numbers are going to improve any time soon.

The FHA program is being overrun with defaults and the inspector general of HUD says they’re completely unprepared.

The FHA may not have the systems and infrastructure to "adequately perform" its duties, or take on new functions imposed by Congress, including insuring jumbo loans of as much as $729,750, Donohue said. The FHA accounted for about 70 percent of the market in the first quarter of this year, up from 21 percent a year earlier, according to Donohue.


Credit card defaults are at 20 year highs and lenders are slashing available credit to existing customers.  While the government is trying to provide more liquidity, financial institutions are taking it away.

The US Pension Benefit Guarantee Corporation, in an effort to eliminate their deficit, allocated more money to stocks last year and is now a sitting duck for insolvency if there’s a big corporate default.

Mortgage rates are at record lows.  It’s not helping.  This is what happens when policies simulate the economy and not stimulate it.  We are still in freefall.  The bailouts are helping the headlines but the struggling continue to struggle.

You’ll notice I have included many South Park videos.  If my intent is successful, you will have laughed, cried and then laughed again.  Now that’s entertainment.

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