Pretend and extend, extend and pretend....

A couple of recent articles to which I find myself having unexpected reactions.

The first is by Jim Quinn on The Burning Platform website: "Consumer Deleveraging = Commercial Real Estate Collapse."

This site and author are turning into the "go to" for information about CRE -- which is an important subject, but one which doesn't seem to capture most people's imagination.

Distilled down, he saying that the overbuilt and overinflated property values have dropped so much, that the lenders are never going to get their money back; that there is a planned "Pretend and Extend" program in place, encouraged by the government, and that if the true value was put onto the regional and local banks, most of them would be insolvent.

Oh, and that the worst is yet to come.

Well, I've commented on the way I think American commercial space was built on a ponzi growth scheme.

But I also have the unexpected reaction of: what else can they do? Let it all crash all at once or spin it out and hope for the best? The reason for this reaction is that there has been more than once or twice in my career when I was probably technically insolvent, but I kept paying the minimums, and stretching my bills, and hoping it would work out.

And in the end, it did. And now I'm a going concern, paying taxes, paying employees, paying my bills and myself.

So Pretend and Extend makes sense. Assuming that at least some of the CRE interests can recover...


The other article was about how big corporate companies are hanging onto their cash and/or reinvesting in their own stock, instead of hiring new employees or making capital expenditures.

As you know, I'm no friend of Big Corporations. But again, I had the interesting reaction of thinking, "But, of course. What else would they do?"

Or more to the point, how is that so different from what a small business would do? Hang onto the cash, cut employee hours, don't buy anything fancy.

I guess I believe that Muddling Through is the normal course of events.