Coronavirus May Deliver Coup de Grace to Overrated Commercial Mortgage-Backed Securities (CMBS)

S&P made up for its tardiness by downgrading the CMBS in one fell swoop by 9 notches from AAA to BBB-, just one notch above junk.

By Marc Joffe who consults for PF2 Securities:

The COVID-19 virus is going to have an especially severe impact on Commercial Mortgage Backed Securities (CMBS), bonds that are backed by mortgages on non-residential properties. According to data from DBRS Viewpoint, more than half of the mortgages in CMBS deals are on offices, hotels and retail buildings – three categories being especially hit hard by shelter-in-place orders.

If shelter-in-place restrictions are lifted quickly and everything got back to normal immediately thereafter, most of these properties would be able to continue servicing their mortgages. But if we are instead entering a new normal of increased telecommuting, reduced travel and more online shopping, thousands of office buildings, hotels and malls will default.

This potential default wave will first expose the folly of poorly structured, over-rated CMBS deals. On the ratings side, the reckoning began on March 20 when Standard and Poor’s downgraded (password required, but available for free) 60 bonds in 15 deals with concentrated retail exposure.

In its downgrade announcement, S&P stated: “While COVID-19 will likely have an accelerated effect on performance declines for properties with retail exposure, today’s rating actions do not specifically address the outbreak of the virus.” So further ratings “adjustments” may occur once the full retail impact of the coronavirus is fully understood.

The most dramatic downgrades were meted out to poorly diversified Single Asset / Single Borrower securities that Joe Pimbley and I highlighted in a previous Wolf Street article. In that piece, we focused on AAA securities backed by two mortgages on Destiny USA, a mega-mall located in Syracuse, NY. That mall is partially closed until further notice. S&P has now reduced the ratings on these bonds by five notches to A (Destiny USA, image via Wikimedia Commons):

S&P dealt an even steeper downgrade to another single borrower deal:  Starwood Retail Property Trust 2014-STAR. This CMBS transaction is backed by mortgages on four shopping malls owned by Starwood Retail Partners. Although geographically diversified, three of the four malls have lost anchor tenants. Starwood wrote down the value of its investment in the four properties by nearly 50% last May, and payment defaults on the underlying mortgage began in November, suggesting that S&P’s action is not especially timely. S&P made up for its tardiness by downgrading the AAA notes nine notches to BBB-, just one notch above junk. S&P stated:

Although we believe the credit risk on class A has increased, we also believe its senior position in the waterfall somewhat mitigates principal losses and interest shortfalls concerns; and, as a result, we opined that the certificates continue to exhibit the credit characteristics of a low-investment-grade rated security. However, if there are any reported negative changes in property performance beyond what we have already considered, we may re-visit our analysis and adjust the rating as necessary.

It has thus left the door open to quickly downgrading the security into junk territory as the coronavirus situation evolves. Potential buyers of this security would have been better served by more active monitoring of this deal which would have resulted in several smaller downgrades, rather than the sudden markdown of a supposedly risk free security to the precipice of high-yield.

But rating agencies have little incentive to perform the necessary monitoring. They are paid by deal issuers and competitively dumb down credit standards to get issuer business. They also receive pressure from the owners of securities who hate to see downgrades, which may necessitate markdowns or forced sales of instruments in their portfolio (since some asset managers require their holdings to be at or above a certain rating).

To S&P’s credit, they have been faster to recognize their folly than certain others.  As of March 23, for example, Kroll Bond Rating Agency still rated the Destiny USA senior notes at AAA. And DBRS Morningstar Ratings still showed the Starwood 2014 senior notes at AAA. So, it appears that the newer, smaller rating agencies are not yet improving the rating business’s surveillance capabilities.

Although the bond issuers and credit rating agencies could not be expected to predict the coronavirus crisis, they should not encourage the creation of AAA securities that are so exposed to event risk. A single property is not only vulnerable to pandemics, but to terrorist attacks and weather catastrophes, let alone financial distress of anchor tenants such as Macy’s.

But overrating of poorly diversified CMBS securities continued right up to the start of the virus outbreak. On March 5, Moody’s (password required) and DBRS Morningstar both assigned provisional Aaa/AAA ratings to Class A certificates issued by BX Commercial Mortgage Trust 2020-VIVA. This deal is collateralized by a mortgage on the MGM Grand and Mandalay Bay resorts in Las Vegas. As the Wall Street Journal reports today, Citigroup has been unable to sell these securities, leading one to wonder whether they were really AAA in the first place. By Marc Joffe who consults for PF2 Securities.

“A dozen years after the financial crisis, rating agencies remain a weak link in the financial system. We don’t know when the next financial storm will occur or what it might look like, but overrated commercial mortgages are clearly a vulnerability,” Marc Joffe wrote in December 2019. Read… Mall Shooting Highlights Folly of AAA-Rating of CMBS Backed by a Single Mega-Mall

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  72 comments for “Coronavirus May Deliver Coup de Grace to Overrated Commercial Mortgage-Backed Securities (CMBS)

  1. 2banana says:

    Hubris plus greed.

    The twin foundations of the greater fool theory of investments.

    “As the Wall Street Journal reports today, Citigroup has been unable to sell these securities, leading one to wonder whether they were really AAA in the first place.”

  2. Seneca's cliff says:

    Are these things used to finance the big apartment complexes that are going up in the big West Coast Cities? Many of these in urban areas have the bottom floors carved out as commercial lease space. Is the whole building financed with same financial instrument? Is the commercial portion carved out and financed with these CMBS’s.

    • Jonas Grimm says:

      If these go under do you think the apartments will become affordable? Or will they just be bought out by equally egregious landlords?

      • Multifamily says:

        Some stabilized apartments are financed with CMBS, Fannie and Freddie. The answer is that many apartment buildings especially on the high end didn’t cash flow prior to coronavirus. I think many will be impaired. They should be foreclosed and then yes there will be rent relief for tenants. Unfortunately the FED has already backstopped CMBS, Fannie and Freddie as well as told banks to kick the can for a while. So for now the current landlords hold on. Total BS.

      • Cas127 says:

        The Feds’ ZIRP dementia causes asset valuations to soar under the fairly standard DCF (discounted cash flow) formula.

        To make good on these goofy inflated valuations, apt complex buyers frequently jack the rents (a very, very, very common problem).

        That is one major way DC’s “painless” money printing actually makes over 100 million Americans take it in the neck.

        But, because it happens in separate steps, DC (as it is congenitally prone to do) finds an external patsy fall guy for the consequences of its own asinine policies.

        • HowNow says:

          Ah yes, the DC conspiracies… No, the apartment builders, managers and owners (most often, REITs) jack the rents as a matter of course, not as a conspiracy. They want to max their income, period. And when showing more income, they can flip the units (short ownership to maximize accelerated depreciation) at higher valuations to the next buyer. This has nothing to do with DC. Build your case against the govt on firmer soil.

  3. Michael Engel says:

    1) What will u do with $1K manna from heaven.
    2) Einstein : save $1K in the bank, because the compounding force is the strongest force on earth.
    2) A wealthy accountant with 10 grand children : divide 1,000 by 4 = 25. Each kid get $25 gift for 4Y., on his/ her birthday.
    3) A Wall street guy driving fancy BMW : US treasury will print to infinity, financing every citizen doing nothing all day, $1K is nothing. Spend the whole $1K now, because a Weimar inflation will delete money within few months.
    4) Fico < 600 guy : pay $500 to the c/c, to keep them alive. Invest $500 in multi cases of Corona Beer and Miller Light, before the corner store will shutdown and go BK.

    • 2banana says:

      5. Buy about 2 kilos of silver. Bury. It will be worth something.

      6. Buy shares of Amazon (partial), Google, Lockheed Martin or Goldman Sachs. They will keep going up no matter what.

    • Cruiser says:

      Indeed, pending fiscal action probably won’t even slow the secular financial collapse now underway, at least not in a meaningful way. However the already foundering fiscal ship will have additional holes through the hull added to its collection. We’ll see if the Fed can plug those holes with accounting entries, which is all it takes to conjure new fiat currency. Prediction…it can’t.

      • Scott Robertson says:

        Absolutely agree. Too many holes in the dyke (hull); too many balls in the air, and far too many plates to keep spinning. If the ratings agencies show moral responsibility (and I know that’s a stretch), the deluge of non-investment grade CMBS hitting the market will elude even the multi-trillion dollar so-called lifeline being thrown by the Fed. That is, of course, they are suddenly given the green light to buy junk, as well.

    • Gold is just..gold says:

      Well Michael:
      1) first will buy booze, then when money almost gone and pantry empty, food (if available)
      2) Yes, Einstein correct then. Now would say ‘buy gold & silver’ and be acclaimed, again as very smart dude (unless govt smarter/more evil)
      2) Better than zilch (what I give grandchildren, selfish brats)
      3)Correct. Then riot. Wait! Almost correct not quite..1st come massive deflation, then massive inflation. Riot at will. (many look forward to infinity printing and being rich – before the riot)
      4) Miller light? Not good for riot.

    • S says:

      Answer: According to some, buy ammo for the coming collapse. I already have too much, so I am going to buy the new Mac Air announced last week. I will need to quarantine it for awhile just to be sure there is no Covid19.

      • mike says:

        Good luck trying to repair it later if you have problems with it. ;-) I could not even have the battery replaced on my relative’s old Iphone 6, even though they still have the same old email, because they demand that you remember your old cell phone number from when you first created your Apple account to allow you to reset your password. If you do not remember it, they say buy another phone and “tough.”

        You may also want to read about Apple and reports of its contractors’ use of Uyghur prison labor in China by googling for those articles. You do not have to read about their years-long policies as to payment of US taxes.

      • Candyman says:

        Wow..A comment from Satan? Your hate for the president clouds any clear thinking on your behalf. Trump is trying to balance between lock down and economic depression. I suggest you study the 1918 epidemic as well as the black plague of the 1300s. How and what did those nations and people do to survive. Death, prematurely is frightening, from the flu or starvation. It is folly to believe any government can or will provide the necessities of life , and keep life styles the same as before the pandemic. Truth. So, hoping the shut down can be lifted by Easter is meant to give you hope and strength to forge onward. 330 million folks are listening, as is the world. While shut down may not be lifted, embracing fear and doom will create chaos. So, how are you helping your community to survive and thrive?

    • JFP says:

      In 2015, New York State was told that they needed to stockpile 15,000 ventilators to prepare for a pandemic. Cuomo’s administration declined to buy them, and instead had a plan to triage who got ventilators drawn up.
      In 2009, after using 100 million masks during the H1N1 epidemic, the Obama administration was told they needed to stockpile 1 billion masks. They elected not to buy them.
      The Covid-19 testing in the US was bungled by a combination of the CDC screwing up and the FDA over-regulating.
      Trump hasn’t done a great job, but the truth is the US wasn’t prepared and was bound to bungle the response to a pandemic.

      • Unamused says:

        Hasn’t done a great job?

        Seeking to gut the CDC’s funding was only one of the moves the administration made that weakened America’s ability to fight the current outbreak. In 2018, it eliminated the White House National Security Council’s pandemic team, which had warned for months that the U.S. was unprepared for a disease outbreak.

        Acting White House budget chief Russ Vought told Congress earlier this month that the administration did not plan to amend its 2021 budget, which would cut the CDC’s funding in by 15% despite the ongoing outbreak.

        Which is to say, doing the worst job it can get away with.

      • Wisdom Seeker says:

        Unamused, I’m surprised to see you making the implicit assumption that federal funding for any of the activities you mention would actually be money well spent?

        Seems like deregulating virus testing would have saved the CDC and FDA a huge black eye and been better for the nation as a whole.

        Also seems like federalizing things like mask stockpiles has been a disaster as well.

        Had they simply required hospitals to have pandemic stockpiles (or they don’t get medicare $$), the FedGov and StateGove could have stayed out of it and avoided embarrassing themselves and the nation…

      • JFP says:

        Unamused,

        The Trump administration didn’t eliminate the NSC Pandemic team, they folded it into another group within the NSC. Nobody lost their job.

        And, my point was that the previous administration and the NYC state administration had been warned, and did nothing also. The failure of the US Federal and State governments has had very little to do with Trump. If H1N1 had been as infective as Covid-19, then this disaster would have occurred then. It was luck not competence that saved us then.

      • Unamused says:

        Unamused, I’m surprised to see you making the implicit assumption that federal funding for any of the activities you mention would actually be money well spent?

        Right. Better to spend a few trillions on ‘national defense’ and tax cuts for the rich.

        What was I thinking?

      • Unamused says:

        Had they simply required hospitals to have pandemic stockpiles (or they don’t get medicare $$), the FedGov and StateGove could have stayed out of it and avoided embarrassing themselves and the nation…

        And throw government interference into the profiteering business plans of the Medical Industrial Complex? Some capitalist you turned out to be.

        Besides, the federal government has in no way embarrassed itself. Why, Number 45 gave himself a ten out of ten just the other day. Pretty impressive, huh?

      • TXRancher says:

        ” his approval numbers hit their highest point ever, with 60 percent of Americans approving of his coronavirus response efforts”

        six out of ten? Pretty impressive.

      • Andrew says:

        JFP-

        I dont disagree w you. That said, i would recommend citations. Why? There are a lot of folks left on the spectrum that will deny what you are saying. It is advisable to show them actual sources.

        It is a sad commentary, but there is a good % of the population that is happy about the devastation that is / is about to happen to our economy etc. Back up w sources!

    • Javert Chip says:

      Mike:

      Congratulations.

      You bellowed yourself, passed your hiring exam for fake news, and violated Wolf’s “no politics” rule in one screed.

  4. nick kelly says:

    Lets face it: BBB is the new code name for junk…the rating agency just doesn’t want to be rude and lose the business.

    There are many cases of obvious code- speak in the vernacular. To say ‘fair maiden’ means good. To say a car is in ‘fair’ condition means it’s a wreck.
    An example closer to this BBB stuff is found in the book the Caine Mutiny (the author served in the WWII US Navy and knew Naval code -speak)

    The protagonist, spoiled Princeton brat Lt. Jg Willie has just screwed- up major and the Captain (pre- Queeg) downgrades his Fitness Report from ‘Outstanding’ to ‘Above Average’

    Willie is appalled because everyone knows that
    ‘Outstanding’ means ‘Average’

    ‘Above Average’ is code for ‘below average’ or in the author’s words: ‘the man is a non- entity’.

    BBB looks like the new “Above Average’

    • joe saba says:

      I spoke with private finance guy this morning and he has client who owns over 150 franchise restaurants
      seems there is clause in commercial leases that state if govt shuts down your business then you declare force Majuere and you don’t have to pay rent
      he sent letter to all landlords
      no april rent will be paid

      • 2banana says:

        Dangerous game.

        Sorry your toilets are backed up. We will be over there is two weeks to fix.

        Oh, BTW. Here is a letter from my lawyers. They tell me since you could service take away and delivery, that clause doesn’t count. See you in court. We are suing for interest and lawyers fees too. And we are not renewing. So get all your crap out of here when your lease expires next month.

        Didn’t he try to pick up the phone and talk with and work with his landlords first?

      • Shiloh1 says:

        Is the landlord same or related entity as franchisor?

    • Shiloh1 says:

      Garrison Keillor rating the bonds.

  5. doug says:

    No bother. Fed buys them at full face value and stuffs them out of sight and out of mind.

    • Wolf Richter says:

      Thing is, last time the Financial Crisis caused an economic crisis. Now, an economic crisis is causing a financial crisis. So the Financial Crisis now is a consequence, not a cause. The Fed is now trying to fix the consequence but isn’t doing anything about the cause. So that’s not every helpful.

      • doug says:

        Thanks Wolf. I agree.
        I appreciate all you must do to pull this site off, and participate so importantly in the comments as well.
        Good luck to all.

      • former says:

        >> The Fed is now trying to fix the consequence but isn’t doing anything about the cause. <<

        Playbook from health care

      • Shiloh1 says:

        I dunno Wolf. What about the Repo 2018 and 2019 failure/rescue episodes and Jaime’s heart attack? Financial Crisis of the Wall Street Casino never ended,, what got fixed? 10 years more of kindling.

    • Lance Manly says:

      Yup the Fed is going to buy them out by the looks of the coming legislation and Fed policies. Not really capitalism anymore. More like the rich oligarchs getting bailed out whenever their risk assets go bad. Leona Helmsley would be proud. Why the F*** do I not get bailed out when I make a bad bet.

  6. Realist says:

    Rating agencies, aren’t they like the kind of wife you can buy ?

    • lenert says:

      No need to disparage wives. More like buying the ref.

    • Unamused says:

      They’re not buying anything. It’s a short term rental.

      I’m not buying any of it. Not renting either.

      Does anybody really think $1k is enough to bribe people into accepting their subjugation? You wouldn’t think people would sell themselves into serfdom so cheaply, but maybe that’s the going rate.

      • doug says:

        one $K vs no $K? sure…desperation everywhere

        • Unamused says:

          When you can strangle them by their pursestrings their hearts and minds will follow.

      • Cas127 says:

        “Does anybody really think $1k is enough to bribe people into accepting their subjugation?”

        Why not? Peoples have sold themselves into servitude based on much, much, much less – mere *promises* made by obviously delusional political ideologies.

        At least the $1k is upfront…not in a mythical lockbox.

  7. Cruiser says:

    CMBS paper is no doubt impacted rather more acutely by consequences of pandemic but we must understand the entire financial bubble, perhaps the most extreme in human history, has now been pricked by pandemic (the pin). All the financial paper backing heavily leveraged financial markets has been profoundly mispriced via comprehensive manipulation of the most important set of prices in an economy, rates of interest. With central banks against the zero bound wealth represented by distorted financial paper will now be wrung from the system via inevitable systemic, secular scale financial collapse. As with an inevitable hangover we must go through the healing phase following the damage…which has already been done.

    Note central banks will ultimately replace mispriced financial paper, plus massive unfunded liabilities, with soon to be profoundly debased currency (already underway). Those who act in time can be prepared for inevitable consequences, although the market as a whole cannot (for every seller there must be a buyer). Tangible assets offer refuge.

    • Thomas Roberts says:

      Right now the 2 most central major problems in US economy are the valuation of the stock market with it’s associated shenanigans and the banks “and associated financial companies”. If the these 2 things are allowed die, chocked out quickly, and replaced; the actual damage to the economy and US Dollar would be small. The only thing affecting most people that is screwed, are 401k’s and many other pension plans, these were always doomed and don’t actually exist, there are numbers on paper. Over time, to make up for destruction of the everyday person’s retirement plan there would have to a major redo of the healthcare system and then social security “the main dominant retirement plan for the 99%” would have to be raised. Real estate prices are also intertwined with the above problems and need to come down.

      The third most major problem is lack of competition “non functional anti trust courts. a big part of the problem”, leading to higher prices and sometimes inferior products, that would have to be tackled over time.

    • Cas127 says:

      Thanks for pointing out that ZIRP has played a key role in systemic over-valuation.

      Back to your main focus:

      “They are paid by deal issuers and competitively dumb down credit standards to get issuer business.”

      1) A meta rating agency (funded by investors/gvt/issuer fee pool) could rate the multi yr performance of ratings agencies – that would provide a counter-weight to agencies’ trollop-like tendencies.

      2) The issuer-rater conflict of interest could be severed entirely…an issuer fee pool could be created and raters randomly assigned, paid for by that pool. Can’t pander to issuer who does not control your selection.

      These seem like pretty easy fixes that could\should have been done after ClusterF*ck 2009.

  8. joe says:

    Are you not keeping up with the news?
    The Fed will buy it whatever it is if you are a friend of theirs.
    BTW, “the Fed” is owned by the commercial banks which keep the profits but pass the losses on to you Mr Taxpayer/Sucker.
    Think it through – create money from nothing and buy stuff. When do you think they will own all the stuff. Just because they throw you a few crumbs to keep you quiet, they don’t give a heck about you. They will get even the crumbs back.

    • Unamused says:

      The Fed will buy it whatever it is if you are a friend of theirs.

      And if you’re not their friend they’ll drive the price down and do a hostile takeover. Usually through one of their many proxies.

  9. Deanna Johnston Clark says:

    Boomer grandma reporting in…howdy all here!
    Per usual, I’m pushing everyone to cultivate friends and relatives. Be faithful to small carry out locals. Leave decent tips and a smile behind you.
    I’m proud of my son, who owns a small business making beautiful signs from SC pine. It is shut for now, but he made a nice sale last night online. In high school he worked at the grocery 3 blocks away….they have rehired him for the crisis to stock shelves and help out.
    His brother has made a FB movie renaming his coffee shop from Blue Door to Blue Window and drawing people for carry out waffles…best in town. Come buy! Come try!
    Another story is of a friend who has lived for years on her dad’s stock market portfolio….panic city, I’ afraid. Many broken dreams in Hilton Head across the river.
    Gated cocoons are so 5 minutes ago….but we got through reconstruction and it’s kind of fun to see our mixed race population pitching in together.

  10. Beardawg says:

    Guessing everything BBB+/-/1/2/3 or “fill in the blank” will be bought by the Fed, then re-packaged and sold to pension / 401K Managers after commissions and fees paid and the original bond owners cashed out at Par.

  11. Iamafan says:

    Our favorite m-REITs are blowing up nowadays. ZH has a few stories.
    Fantastic business model.

  12. Jeff Relf says:

    Multi-family properties are suffering too.
    Single-family rentals seem to be doing okay.

    My SRO tenants are approaching me,
    saying they don’t have to pay rent.

    Eventually, the ban on evictions will go away,
    and they won’t be able to catch up.

    If they fight it, in court, they can win.

    Seattle gives them crack lawyers, no charge,
    and charities pay the past-due rent.

    Late fees, court fees, and property damage,
    must be transferred to a bill collector;
    the judge doesn’t want to hear about it.

    Evicting someone for bad behavior is
    damn near impossible in “progressive” Seattle.

    If they lose, they won’t leave unless-and-until
    the sheriff drags them out. Even then,
    some have to be trespassed — they hang around.

    There’s a tsunami of scary squatters,
    stealing bikes and UPS packages;
    they trade it for meth, heroin and sex.

    The police tell me they aren’t sending
    anyone to jail these days.

    • nofreelunch says:

      The lesson in cities like that is not to use your own money to invest in housing for others. If the city is going to support de facto confiscation, don’t give them your money.

    • 2banana says:

      There are two solutions.

      One is that there is going to very limited rental stock available and only available, by word of mouth, to those who have a excellent reputation as good renters or know somebody who can vouch for them.

      The other is tough men (some with bats) that are going to make offers that won’t be refused.

      I have seen both work very well.

    • Unamused says:

      Evicting someone for bad behavior is damn near impossible in “progressive” Seattle.

      In the old days you could sell their kids to the gypsies, and now they won’t even let you do that.

    • Andrew says:

      Jeff-

      Sounds like we are in same business. I am here in Austin. Same thing. Section 8 tenants et. al. Come in, destroy the unit and then leave the landlord high and dry, or u have the “40 for 40” (40 social workers at the NPO making 40k) telling u what a nice person they have that needs a place to live. They are all deadbeats, destroy the properties and after the charity rent runa dry- they are out. The social workers and others should take these folks in!!

      Interestingly, once into the rural communities u dont see any of this BS.

      • Jeff Relf says:

        Andrew replied ( to me ):
        > They are all deadbeats, destroy the properties
        > and, after the charity rent runs dry, they’re out.

        Yes, it’s as predictable as the sunrise.
        Absent punishments and rewards,
        people do whatever the hell they feel like.

        Rock the house at 4 a.m., high on meth,
        break windows left and right,
        knife people, spray mace,
        steal from your mother, whatever.

        > Interestingly, once into the rural communities
        > you don’t see any of this BS.

        If this were Arkansas, instead of Seattle,
        half of my tenants would be in jail.

        In Seattle, when “screening” tenants,
        we’re not allowed to consider one’s criminal history,
        nGod forgive me nor are we allowed to discriminate based on income source.

        Once, when I baulked at a fat charity check,
        I was threatened with a lawsuit.

        You don’t have to go far into the sticks to see a difference;
        Bellevue, adjacent to Seattle, it is quite different.
        Amazon is moving there, I think.

    • Lisa_Hooker says:

      I once had an acquaintance that bordered on a slumlord. For deadbeats he would have all the doors removed for refinishing. That usually produced rent. His guys drove a van with E. Victor, Inc. on the side.

  13. Unamused says:

    The other is tough men (some with bats) that are going to make offers that won’t be refused.

    At what point in this narrative does Snidely Whiplash tie Nell Fenwick to the railroad tracks?

  14. Noelck says:

    Pelosi’s husband runs a real estate venture capital firm. Do you really think there is no bailout forthcoming?

  15. Unamused says:

    Do you really think there is no bailout forthcoming?

    There won’t be anything left after 45 bails out his own RE empire unless she signs the NDA and bends the knee.

  16. nick kelly says:

    We are reminded how much faster deflation is than inflation. A thousand days of stock appreciation (about 11 trillion) has been wiped out in ten days.

    Then there is the implosion of bonds noted in the main piece above.

    Then who knows how large, the re-pricing of everything from used cars to fine art.

    As for housing, we don’t know yet but the hit to the wealth effect is unlikely to boost prices.

    A vague guess, just for the US: a three trillion dollar patch on a fifteen to twenty trillion dollar hole in the balloon.

  17. TimTimNiceButEverSoDim says:

    Lets be honest.

    This is going to, if it has not already lead to, to a straight line wandering for many of those who have nothing to the black market.

    I wonder if we are going to see new structures in many of our ‘civilised’ cities. Structures like those that made money in prohibition.

    Not this time out of an unmet need, but out of fear.

    The details of the article above may rapidly become historical and if not that, simply quaint.

    The obligations outlined above may, if the swiftest can find ways to disregard them, become little more than the paper last weeks news was printed on.

    Figure what you do in that scenario.

    • Unamused says:

      Lets be honest.

      I thought we were being honest. There’s so much I don’t know about financial blogs.

  18. Michael Engel says:

    1) A x10 car dealership chain owner is desperately waiting for US $10T to pay Apr rent and cut debt, because he is a honest man..
    2) NYC was hit by a bullet train. CA corona fault line wild tremors.
    3) Get your $10T and send them to me, to pay rent and my employees ==> not so fast.
    4) With so much money coming to his bank acc, who care about Apr rent.
    5) SF liberal judge will never evict a charming owner of successful car dealership, for reasons beyond his control, while driving the dealership most expensive car, for free….
    6) Zero payroll is waiting for car salesmen and women on commission.
    7) No more repo customer, with Fico 500-600, like in the good old day. Only highest quality, or cash customers. Junk for junk is over.
    8) Since their number is dwindling, inventory liquidation at lower prices, is a must during the emergency.
    9) With $10T in his pocket to do only good things, to save jobs and landlords, without any supervision, the x10 car dealership owner is likely to shut his doors, default on debt & obligations to his people and let go.
    10) Business was bad for over a year. The prospect of depression is growing.
    Going out of business in style, waiting for better days, with $10T in the pocket for rainy days, he will do right thing.

    • Gandalf says:

      Didn’t you predict all of those things already in 1555? In your book, Les Prophéties.

      You were known as Michel back then. Remember?

  19. joe says:

    What part of Fed buys any crap that a rich guy owns, don’t you understand?

  20. RetailMan says:

    NO ONE is mentioning the SPECIAL SERVICERS who have historically &^$#!@ borrowers through their draconian measures intentionally keeping the borrowers in default purgatory to generate obscene fees and in some cases foreclose to their own ownership or auction the assets off their platforms for even more fees.

    They are supposed to minimize losses for their bondholders based on the servicing standards! But I feel they wont unless they are compelled to do so by the Feds.

    Yes, the GSE’s and Fannie CMBS are playing nice, but not these guys.

    Middle finger…business as usual.

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