The WSJ just released an article foretelling that small to mid size banks will be losing ~100 Billion in capital this year due to commercial real-estate investments. Joe Weisenthal of Yahoo’s TechInsider goes on to say, it isn’t just the big banks that make bad investments. 

Wow!  I think Joe has forgotten trickle down economics. When big banks royally mess up and send the economy into a whirlwind downfall shouldn’t it be assumed that eventually the smaller banks will be impacted? It doesn’t mean the small banks make bad investments, it means that everyone is affected.
This too big to fail philosophy has some holes. The impact on the smaller banks is a glaring one. We should be letting companies fail that deserve to fail and saving companies that have good business practices that will be adversely affected by the Mortgage crisis. Investing in commercial real-estate was only a bad investment because of the economic down-turn. But giving loans for commercial real-estate is critical and necessary for a functioning economy. The smaller banks shouldn’t be penalized for keeping the economy going. Commercial real-estate will not be in a good place until consumer spending rebounds. Consumer spending is being impacted because of job losses and downturns of stock portfolios. It is all a vicious cycle. But right now, the big question is, where will economic stimulation have its biggest impact?
This is a time for disruption. We can’t assume that everything will or even should go back to the way it was. There were things that were broken e.g. population decreasing, housing development increasing, housing prices overly inflated, commercial real-estate also inflated, loans overly accessible by people and businesses that do not have collateral or sufficient income. Oh and don’t forget, our overall environmental impact and oil crisis. We needed something to shake things out. I just hope that we take this opportunity to build the economy of the future instead of trying to keep the status quo. Take the stimulus money and make it an opportunity for innovation and new leadership. I don’t have any faith in the incumbents in the big banks. Nor do I have any faith in the incumbents in the US auto-manufacturing. Let’s push for the new economy. Sustainability, fiscal responsibility and potentially even more small business.
Sadly, indicators tell me that the economy hasn’t hit its low yet. Take a look at what Howard Davidowitz has to say. Unemployment is high and shows no true signs of decreasing, consumer spending has not mended, foreclosures are continuing, credit is unaccessible to the individual etc., the commercial real-estate is on the verge of depression, the dollar is finally getting hit by Brazilian and Chinese trade and we are likely to start seeing some major inflation. But I am positive that the economy will turn around; however, I expect another major dip before that happens.
What will the signs be of an economy on the mend?
  • Stop bailouts for companies that are failing
  • Start paying off our debt, not just the interest for our debt
  • Implement proper banking regulations and criminalize the behavior that made us get into this mess in the first place
  • Decrease unemployment
  • Increased consumer spending
  • Foreigners renew faith in US government (Obama has been helping here) and the dollar (Stimulus packages doing major damage here)