How a Looming “Lehman Moment” in Commercial Real Estate Can Tank the US Banking System

If you are like 94% of American adults, you have money sitting in a bank. This is why you need to be aware of a serious crisis quietly brewing among banks that have issued commercial real estate loans. Last February, Bloomberg warned of defaults in the commercial real estate sector. Regional banks are slowly getting smother by a wave of commercial real estate debt delinquencies; many edging closer to defaults. Over three hundred US banks are at risk of collapsing, thanks to a toxic cocktail of bad loans fueled by a Fed bailout that did no more than mask a festering wound. In the end, you, the taxpayer, are on the hook for trillions once this house of cards topples over. How Did We Get to This Point? Remember how inflation spiked in 2021 during the post-pandemic recovery? Well, the Fed panicked, jacking up rates to fight inflation and draining capital from a market that was relying on easy money. Now, trillions of dollars in commercial real estate are underwater. On top of this, the post-Covid landscape saw fewer people returning to offices, creating urban ghost towns (like San Francisco). Perhaps “zombie cities” might be a better description (with commerce not quite dead, but certainly not alive either). Here's the kicker: nobody fixed the problem. They just poured more money into the problem, piling on more debt, hoping it would magically resolve itself. It didn’t. And now, the debt has ballooned to a staggering $929 BILLION due in the next nine and a half months, a 28% increase from last year. The looming crisis is like a financial meteor hurtling toward the economy. But many people remain unaware of the situation. Still, for one reason or another—whether it’s to prevent panic or simply an underestimation of the severity of this looming crisis—our leaders have decided not to alert the American public to a crisis that can economically devastate them. Regional Banks are at Serious Risk All deposited bank funds in the US supposedly have a safety net of up to $250,000 per depositor. If one bank fails, deposits are insured up to that amount. If two or three banks fail, despite the enormity of the losses, those too are insured. But what if hundreds of banks fail all at the same time? We’re talking trillions of dollars to be insured. But with what reserves? There aren’t enough reserves to insure a large wave of regional bank failures. What about the big banks? Don’t count on them either. They’re waiting to pick at the carcasses of these smaller banks. Our regional banks are the institutions that know their local markets best. Ironically this “localized” expertise has become their most damaging liability thanks to the Fed's disastrous policies. We've already seen the first domino fall. New York Community Bank nearly went belly-up thanks to its toxic loan portfolio. The situation is far from over. A recent study conducted by the National Bureau of Economic Research predicted that up to 385 banks could collapse solely due to their commercial real estate loan portfolios. There aren’t enough big banks or investors to save all 385 banks. So, when the bank dominos begin falling, the entire banking system, along with the broader economy, will likely crater along with it. What Are You Doing to Save Your Finances? The current delinquency rates are a canary in the coal mine. Commercial real estate loan delinquencies are up 30% in a matter of months, with office loans hitting a staggering 11% distress rate. These are not mere warning signs. They're a call to take action to hedge against a systemic crisis. And like the Lehman Crisis kicking off the 2008 meltdown, this crisis, too, has your name on it. Are you prepared for the coming bank collapse? If history is any teacher, the government's answer will be another round of taxpayer-funded bailouts. Whatever you decide to do, it’s probably best to keep a close eye on what’s happening as it develops. And while you have the time to convert your funds to safe-haven assets, now’s the time to do it.

How a Looming “Lehman Moment” in Commercial Real Estate Can Tank the US Banking System

Bill Brocius Mar 27

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