CIT Group files for bankruptcy protection; Commercial properties collapse coming

aerial photo commercial real estate

“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.

One reader wrote in:

What if the financial system itself is a scam?

I’m 62 years old and for my lifetime I have heard that the cookie jar is empty.

That the poor could not be helped because there was no money.

The money could not be found to open public swimming pools in Toronto for the kids during summer months or to build public housing and homeless shelters.

The story which was fed to us is that the Rich Folks would dearly love to help out the Poor Folks but the cookie jar is empty?

Then …. in a blink of an eye, the world finds trillions and trillions of dollars.

What if the “Financial” system is like the Tooth Fairy?

The fable which they sell as “Finance” or “Economic Theory” might very well be a load of crap.

People believe in an Economic Theory in the same way they believe in a God.

People read the bible and they read anything into it that they want. The myth is carried on from generation to generation. But, it is still a myth.

Each theory is just another brand of religion where an economist claims that God is speaking directly to him.

In ancient times of kings and queens, they used to have court magicians.

Nobody knew or understood the magic.

And the magicians even dressed differently than others of the court. (As bankers do today with suits and ties.)

CIT Group files for bankruptcy protection
Lender CIT Group Inc. has filed for Chapter 11 bankruptcy protection, a potential blow to the thousands of small and mid-sized businesses that rely on the company for loans to keep their operations afloat.

CIT made its filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed.

CIT said the majority of its bondholders have approved a prepackaged reorganization plan which will reduce total debt by $10 billion US while allowing the company to continue to do business.

CIT’s move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government will lose the $2.3 billion it sank into CIT last year to prop up the ailing company.

The Chapter 11 filing is one of the biggest in U.S. corporate history.

Oct. 30 (Bloomberg) — Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”

U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.

Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.

“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.

His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.

‘Extreme Caution’

Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.

U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.

“I think it’s going to take quite a while to work itself out,” Ross said.

As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.

Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.

Corus Investment

WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.

In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.

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