[Cshelton]

I'm in the CRE (Commercial Real Estate) finance tech world.

Most borrowers are currently electing to extend the maturities out another year, many getting IO (interest only) extensions from their lenders, rather than fall into special servicing. "Special Servicing" is the process to take deals like this and find the best outcome for the lowest lender on the capital stack waterfall. Fortunately, there are many processes in place to handle these kinds of things and not left for the taxpayers to bailout... typically.

Bailout? Why? Because it's not just these "rich" landlords/investors that lose their money. They are pension funds, retirement funds, Teachers retirement funds, public service funds, your neighbors' annuity, etc.

The whole thing is a big circle of money that becomes increasingly more complicated in each CRE cycle of boom/bust. The sentiment in the CRE world is definitely of uncertainty and caution right now. Many are optimistic about later this year and things turning around. It's not only Office either, many multifamily deals were done with a cap rate that could not be sustained, and now the deal is no longer "cash flowing", so the borrower cannot service the loan and they can't raise rents either as that side is also under pressure. With Office, companies are still not fully in office, combined with the layoffs, and the prospect of a down economy ahead has them cutting spending where they can. The leases don't renew, and the borrower has no ability to refinance with the rate hikes.

We're in a very delicate time period right now and one catalyst can send it in either direction, very quick.

[swatcoder]

> Bailout? Why? Because it's not just these "rich" landlords/investors that lose their money. They are pension funds, retirement funds, Teachers retirement funds, public service funds, your neighbors' annuity, etc.

And why did those socially vital funds invest in a boom/bust industry? Oh, because bailouts will protect them during the bust. Like free insurance. Whee.

What could go wrong with a feedback loop baked into the economy?

[bcrosby95]

The biggest trick the rich pulled on the wider public is getting them financially invested in the same things they are. In a democracy, what better way is there to guarantee that your losses will be socialized than giving the masses a financial interest in your losses being socialized?

[voisin]

> And why did those socially vital funds invest in a boom/bust industry?

Because retirees like when their funds earn more than T-bills and actually beat inflation and that entails taking risks. Otherwise everyone can work a hell of a lot longer.

[swatcoder]

But that’s the point. They didn’t take a risk pursuant to their upside expectation. They exploited an implicit insurance policy that mitigates their downside with other people’s money through bailouts.

“Beat the market” on the upside, “take from everyone” on the downside. Win win!

[fragmede]

Risk involves, well, risk. If commercial real estate is too big to fail, and provides better returns than bonds, then it seems like we've broken something.

[pipodeclown]

Why are you guys talking about a bail-out? Is there any talk of that? Not as far is I know... As far as I've seen that only happens when there is a systemic/ high contagion risk...

[Arnt]

Because real estate has a real component. Those houses exist, and will stay there, for much longer than the boom/bust cycle. Pension funds are long-term entities.

Compared to, say, shares or bonds issued by a consumer electronics company, or a cosmetics company, the real part of real estate is much bigger.

[cjrp]

> And why did those socially vital funds invest in a boom/bust industry?

Presumably because that's the only way they could generate the returns needed to fund the pensions?

[jessaustin]

Put another way, they pretended to fund pensions by purchasing securities that were cheaper than actually funding pensions.

[cjrp]

I'd be interested to see the breakdown of a pension fund; is it sustainable with "safer" investments, what sort of margin is the pension fund owner making, etc. I have no real idea.

[nkh]

We should buy the assets put them in a social wealth fund (like Norway's). https://www.peoplespolicyproject.org/projects/social-wealth-...

It's a very good way to get out of this feedback loop, and I don't ever see anyone mention this very obvious solution.* The linked paper shows all of the different mechanisms that it could be accomplished. But when people go bust, it's even more straight forward.

* Obviously, the reason it isn't talked about in main stream circles is that it would work really well (as it does in Norway and Alaska) and dispossess the ultra wealthy (and the ultra wealthy own those outlets). But thought I'd share the idea here if case people haven't been exposed to it.

[morelinks]

> Bailout? Why? Because it's not just these "rich" landlords/investors that lose their money. They are pension funds, retirement funds, Teachers retirement funds, public service funds, your neighbors' annuity, etc.

Moral hazard.

Force bankruptcy and use any “bail out” to help the investors named above.

[pg_bot]

If your pension fund can't handle an investment potentially becoming worthless you deserve to lose all your money. If you decide to take the risk on any investment, you get the rewards when things go right but face the consequences if the investment doesn't pan out. There's no need for taxpayers to be involved in this process even if the people losing money are teachers, orphans, veterans, or grandmas.

[mynameishere]

Nothing would please me more than those gamblers-anonymous pension funds going straight to zero. I would actually pay higher taxes just to watch that shithouse burn. Bailouts need to end.

I am pretty sure they weren't going to share their profits with me had the ball landed on black. Screw them.

[celestialcheese]

This is a new one. What do you think pensions are?

So your hot take is that retired government employees, union laborers and other beneficiaries of pensions deserve to have their contribution to the pension and their retirement income zero'd out just because you don't get some of the money?

[throwaway5959]

Some people do think like this yes. See: people who want SS and Medicare burned to the ground because they’re already rich and don’t need it.

[rhacker]

CA purchase or lease buildings and pay for remodeling and additional plumbing required to make these permanent homeless shelters. Pack em in too. 10x10 per resident.

[FrontierPsych]

Yes, please.

My friend and I have been talking about this for a long time.

It would cost a lot less to buy these highrises and build them out for homeless, rather than the mess we pay for now.

[aaomidi]

Bailouts are only okay if the public ends up owning a huge chunk of it.

[bsamuels]

Bankruptcy and the ability to flush bad management out of the economic system is the single most redeeming feature of capitalism.

[0xfaded]

I also wouldn't mind if these potential dwelling spaces were priced on the open market rather than pegged to whatever imaginary number is needed to keep pension funds above water.

[ausbah]

rarely seems to happen from my layperson's experience. bad if not straight up illegal management is given fines at worse and golden parachutes at best. equifax, wells fargo, all the monopolists running around, etc. all seem to just get away with stuff