By DESMOND LACHMAN
In March 2008, then Federal Reserve Chairman Ben Bernanke assured us that the sub-prime loan and housing market problems were not of systemic concern to the financial sector. Yet, in September 2008 Lehman Brothers failed in large part because of its leveraged exposure to subprime and housing market lending. Lehman’s failure in turn triggered a U.S. and world financial crisis that resulted in the 2008-2009 Great Economic Recession.
Fast forward to today. Last Sunday, Fed Chair Jerome Powell gave a television interview to 60 Minutes on the monetary policy challenges that lay ahead. In that interview, he went out of his way to provide assurances similar to those of Ben Bernanke in 2008 about the stability of…
By ERIN FLYNN JAY and KIMBERLEY HAAS
As business models continue to change in the post-Covid economy, some market experts are predicting a commercial real estate crash while others are saying there could be a revival in investment opportunities.
Desmond Lachman, an American Enterprise Institute senior fellow, recently wrote that high vacancy rates have already caused commercial property prices to decline. At the same time, property owners need to roll over around $500 billion in maturing loans at higher interest rates.
Lachman said this spells trouble for the banking sector in general and the regional banks in particular. He predicted commercial real estate troubles could lead to the failure of 385 regional banks.
“With as much as 18% of their…
By DESMOND LACHMAN
Rudi Dornbusch, the late MIT economist, famously observed that economic and financial crises take longer to arrive than you can possibly imagine, but when they do come, they happen faster than you can possibly imagine.
Next year, Mr. Dornbusch’s warning could again prove to be prophetic as far as the commercial real estate sector and the regional banks are concerned. To be sure, four years on since 2020’s Covid pandemic upended the commercial property market, we have yet to have a full-blown financial crisis. However, next year could be the year when the commercial real estate market and the regional banks unravel at a faster pace than we thought possible.
At the heart of the commercial property…
By DESMOND LACHMAN
There is good news and bad news for the U.S. housing market. The good news is that by this time next year, mortgage rates will be substantially lower than they are today. The bad news is that by this time next year, the U.S. is more than likely to be in a meaningful economic recession.
The main reason for believing that next year we will have both lower interest rates and a recession is that the Fed is currently engaged in monetary policy overkill and that monetary policy operates with long and variable lags. Those lags are thought to be between 12 and 18 months. That means the economy, which is already showing clear signs of slowing,…
