The Big Freeze
It is bad enough that tax revenues are evaporating to our local, state, and Federal governments. Programs are being cut and jobs lost. The same trend is occuring in businesses accross the country forcing millions of layoffs and cutbacks.
Compounding the contracting revenues is a decrease in valuation of investments held by our governments, businesses, pension plans, and retirement accounts. Where do you think a big chunk of penion fund investments go???? AAA securities and real estate loans. This past year CALPERs lost over $1 Billion dollars on the land source deal alone. AAA rated debt is at the highest spread in decades and lower rated debt is trading for a fraction of par.
As stated before, most of hte savings of our country is invested in debt.....and if debt is not sound than there is no equity.
The country and the world is beginning to realize this problem. Fewer and fewer people are showing up for real estate auctions and those that do are paying less and less. Now this is migrating into the commercial space as well.
Try selling a shopping center, piece of development land, or office building. Few are willing to step up to the plate and even contemplate an offer.
The markets are starting to freeze up!!!!!!!!.....even at the highest levels.
Let's see if Lehman is able to sell its prized money mangement business or $40 Billion RE portfolio. All the big boys are raising money and saying we are going to start looking in December....once December rolls around watch em push it to June.
Remember, we were supposed to be starting the second half recovery right now.
Each day asset values fall, the deficits grow. Pension funds had HUGE deficits going into 2008....where do you think they sit now. As asset values fall, it stimulates more defaults causing more distress in the markets.
Until defaults stabilize, the contraction will only get worse. Until we bring revnues and debt into balance, the defaults will increase. As more and more see this trend, the desire for investors to bid will chill and valuation will implode.
In the end it comes down to one simple question:
How do you pay off 30 years of Trillions of dollars of accumulated debt when there is simply not enough revenues to meet the obligation?????