|
May 24, 1991
Snoring echoed around Wall Street as traders enjoyed a typical preholiday snooze.
In the week's only noteworthy data, Durable Goods Orders climbed 2.9% in April. There is now a convincing pattern of signals indicating an end to the recession, and market focus has turned to guessing at the strength of the coming recovery.
The accident didn't help frayed nerves in the waiting room outside the RTC brain surgery team.
The operating room door was ajar when the surgeons' leader said Š."Oops."
What now, you may well ask. We've given them more money than the Pentagon aren't they done yet? What oops?
It seems our heroes have a little problem on the real estate sales front. The commercial properties are not selling. The RTC abandoned its cash and bury financing strategy a year ago, and began to offer owner financing (that means us, people), and price cuts. Still no sales.
Check out RTC's new terms. The buyer makes a 15% down payment to the RTC. The buyer keeps all the rents until he's paid himself back his down payment. Then the buyer sends the rents to the RTC to pay the owner carry.
Why not just mark down the property 15% instead of charging a phony down payment?
The RTC can respond fairly that the buyer has to have something at risk. But this theory is a mighty tiny fig leaf to cover a titanic financing problem. Reality: the RTC needs the cash, and buyers may never see their "down payments" again. These toosweet terms may not yet be sweet enough.
The problem has two parts. Part one is that most of RTC's commercial inventory has too much vacant space. Building rents are so low that they won't cover building expenses. A 60% empty building can't pay for new tenant finish, can't pay on an owner carry, can't pay the heat, and can't pay back an RTC buyer's phony 15% down.
Part two. The total S&L loss is supposed to be the money owed to the depositors less the real value of the assets. Small timing problem: we have to pay off the depositors immediately, and pay ourselves back when we sell the assets. If the assets aren't selling, we have to finance their value on top of financing the real losses.
So, as you look up from your National Geographic in the waiting room, try to be calm when the surgeon brings you the bill for the oops. It will only be another couple hundred billion but the RTC promises to pay you back as soon as stuff sells.
|
