Just how green are the green shoots the news pundits keep talking about, glowing as they are in the light of the Spring rally on the stock market? Since what we are really facing, in our personal finances, businesses, and as a nation, is a crisis born of too much debt, then it may be instructive to see just how we are doing in that arena. Mortgage debt that could no longer be serviced by the borrower triggered this crisis. It that all behind us now? Not by a long shot.
McKinsey Research released a report analyzing bad debts incurred to date and estimating how much more is likely to come in various categories. Here are the results.
In Residential Real Estate we appear to be half way through the problem, with $640 billion lost so far and another $640 billion still to come. Most of the sub-prime defaults are behind us, but there are still huge waves of Alt-A, Option ARMs and other loan resets ahead that will keep the housing bust crashing in the foreseeable future.
Commercial Real Estate is another ticking time bomb. While only $40 billion in losses has been sustained so far, McKinsey expects another $390 billion in losses here as empty strip malls, business centers and apartment complexes fail to secure refinancing and default. That's more bad news for Main Street.
Corporate and Industrial loans have only sustained 10% of expected losses, just $30 billion so far while another $300 billion is in the pipeline of pain.
Leveraged and High Yield Loans have lost $90 billion so far with an estimated future loss of another $330 billion.
And as for Average Joe, consumer loan losses so far have totaled $130 billion, but another $530 billion in defaults may come in the next 18 months according to McKinsey. That's a lot of bad plastic!
Add it all up and you will see that we are only about one third of the way through this debt crisis. $930 billion in loan losses have been sustained to date, but another $2.19 trillion are still to come. This means you can expect the cirsis in housing and commercial RE to continue indefinitely, at least the next several years. On Main Street, expect unemployment to continue exceeding Depression era levels. Our "official" 9.4% U-3 number now, and the more realistic 16.4% U-6 figure were reached just 8 months after the market crash, while it took over 24 months for unemployment to reach these levels in the Great Depression. In fact, our current U-6 unemployment is well ahead of the 1931 figure of 15.9% recorded a full two years after the 1929 market crash.
With home equity gone, job loss continuing, debt default ruining credit and FICO scores all across the nation, where in the world do you think the "recovery" will come from? People without jobs, with damaged credit and with no collateral cannot borrow. Why would banks lend in this environment?
The hard facts--we are in the bottom of the third inning in this economic crisis. Our starter, (Bush) has been relieved and the government bullpen has been working overtime ever since. We Yankees are a can do bunch, but I'm not sure if even our very own political version of Mariano Rivera (Obama) can save this one. We'll just have to go through the deleveraging process with all this bad debt before we hope to see any real recovery.
Now show me the green shoots.
McKinsey Research released a report analyzing bad debts incurred to date and estimating how much more is likely to come in various categories. Here are the results.
In Residential Real Estate we appear to be half way through the problem, with $640 billion lost so far and another $640 billion still to come. Most of the sub-prime defaults are behind us, but there are still huge waves of Alt-A, Option ARMs and other loan resets ahead that will keep the housing bust crashing in the foreseeable future.
Commercial Real Estate is another ticking time bomb. While only $40 billion in losses has been sustained so far, McKinsey expects another $390 billion in losses here as empty strip malls, business centers and apartment complexes fail to secure refinancing and default. That's more bad news for Main Street.
Corporate and Industrial loans have only sustained 10% of expected losses, just $30 billion so far while another $300 billion is in the pipeline of pain.
Leveraged and High Yield Loans have lost $90 billion so far with an estimated future loss of another $330 billion.
And as for Average Joe, consumer loan losses so far have totaled $130 billion, but another $530 billion in defaults may come in the next 18 months according to McKinsey. That's a lot of bad plastic!
Add it all up and you will see that we are only about one third of the way through this debt crisis. $930 billion in loan losses have been sustained to date, but another $2.19 trillion are still to come. This means you can expect the cirsis in housing and commercial RE to continue indefinitely, at least the next several years. On Main Street, expect unemployment to continue exceeding Depression era levels. Our "official" 9.4% U-3 number now, and the more realistic 16.4% U-6 figure were reached just 8 months after the market crash, while it took over 24 months for unemployment to reach these levels in the Great Depression. In fact, our current U-6 unemployment is well ahead of the 1931 figure of 15.9% recorded a full two years after the 1929 market crash.
With home equity gone, job loss continuing, debt default ruining credit and FICO scores all across the nation, where in the world do you think the "recovery" will come from? People without jobs, with damaged credit and with no collateral cannot borrow. Why would banks lend in this environment?
The hard facts--we are in the bottom of the third inning in this economic crisis. Our starter, (Bush) has been relieved and the government bullpen has been working overtime ever since. We Yankees are a can do bunch, but I'm not sure if even our very own political version of Mariano Rivera (Obama) can save this one. We'll just have to go through the deleveraging process with all this bad debt before we hope to see any real recovery.
Now show me the green shoots.
