The Doctrine of Preemptive Bailouts and the Biggest Bailout you haven’t Heard About: The U.S. Treasury Plan C and the $3.5 Trillion You will be Paying

Last week a story which gained very little traction hit the financial newswires.  The U.S. Treasury is working on an internal project informally called “Plan C” which seeks to deal with further problems in the economy before they occur.  The anonymous report came out stating the administration is reluctant to commit any additional money especially to the level mentioned in the report.  However this is a disturbing new development in our bailout nation since this is one of the first times that the U.S. Treasury will try to preemptively deal with a financial problem.

The issues with this Plan C is that it is setup to be a buffer on further deterioration in various loan categories but the big one is commercial real estate.  The commercial real estate market is gigantic and many of those loans are still active:

Some $3.5 trillion in commercial real estate loans are out in the market.  The problem is complicated because commercial real estate holders simply rollover their debt into new loans.  That of course has changed since the economy and credit markets have shutdown and many of these properties are now severely underwater.  Take a look at how many loans will be turning over:

*Source:  ZeroHedge

The amount of maturing loans in commercial real estate will double in 2010 and will continue upward into 2010.  The chart is very clear and this is only for debt in CMBS and not held by regional banks which is over $2 trillion.  This is the next multi-trillion dollar bailout you have yet to hear about.  In fact, while many are discussing a second half recovery higher up officials are already planning a bailout for the commercial real estate industry.  The challenge with this bailout is you are asking a public with 26,000,000 unemployed and underemployed Americans to shoulder the debt of largely speculative plays.  To many it is palatable to bailout the residential real estate market because the public can understand that (even if it may be wrong) or bailing out the 2 large U.S. automakers.  Yet bailing out the commercial real estate market is going to be a political nightmare.

Source:
The Doctrine of Preemptive Bailouts and the Biggest Bailout you haven’t Heard About: The U.S. Treasury Plan C and the $3.5 Trillion You will be Paying
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