SHOPKEEPER AT THE BEACH
At 70% loan-to-value, this was a darn good
private trust deed investment. But look now!
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We have lowered the loan-to-value ratio on this deal
to only 65%!
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The subject property is a brand new, mixed-use condominium.
The buyer gets a retail shop on the ground floor and a residential
unit above it in which to live. You wander downstairs, without
rush hour traffic, to open your shop. Maybe you get up a
half-hour early and sip a mocha on the beach as you watch
the waves roll in. Pretty nice lifestyle, wouldnt
you say?
The unit you see in the picture is typical of the units
in this project, but the chances are that this is not your
unit. There are a total of eight units in this project that
we are financing. The project is bright and shiny new. It
was just completed. The units will be available for sale
soon, so this is a great place to park some cash on a relatively
short term basis. (Of course there is no guarantee of an
early payoff.)
The borrower is a developer with good credit. Some of the
best located properties in the world are those located along
water (oceans, rivers, lakes, etc.). There is only so much
waterfront property.
The mom was sobbing quietly in the corner. Suddenly the
double doors flew open. The dads heart skipped a beat
as he watched the doctor stride grimly into the waiting
room. "I wont kid you. Her condition is serious.
In fact, its touch and go. Well know more in
the morning. The signposts we need to watch over the night
are her blood pressure and her temperature. If we can keep
her systolic pressure above 65 and her temperature below
101 degrees, she might possibly survive."
The Japanese economy is in intensive care right now. The
signposts we need to look for is a Nikkei Stock Index above
14,000 and a willingness on the part of the government to
inject capital into the banking system. Absent these conditions,
the patient will die.
Thirty percent of all bank loans in Japan are currently
in default. Total Japanese bank losses are estimated at
U.S. $1 trillion, one-tenth the savings of the country.
In 1990 the U.S. government mobilized the R.T.C. and quickly
moved hundreds of billions of bad loans off the books of
banks. The U.S. taxpayers paid the price, but they also
avoided the depression that Japan is currently enduring.
Japanese taxpayers are furious. Banks wrote hundreds of
billions of dollars worth of speculative, insider loans
during the go-go era of the late 1980's. Now the Japanese
people refuse to bail out the banks. But in the process
of trying to punish banks for their excesses, the Japanese
people have destroyed their own banking system. Liquidity
has dried up like a desert floor. No banks are lending.
Small businesses, the engines of employment growth, are
starved for credit. Economic growth is negative.
Japanese banks were allowed to invest their capital in
stocks. As a result, as long as the Nikkei Stock Index stays
above 14,000 - on paper at least - many Japanese banks are
still technically solvent. But that barrier broke down several
times this month.
If the Emperor died and made me Chief Japanese Honcho,
this is what I would do. I would order every Japanese bank
to issue three times as many shares as they have currently
outstanding. I would then have the Bank of Japan buy the
shares at a discounted price. Then I would order the Japanese
banks to use the fresh capital to write off or write down
$800 billion worth of bad loans. Get those lead-weighted
suckers of the books. Finally I would order the Japanese
banks to make $200,000 billion worth of new loans to small
Japanese businesses unrelated to the large conglomerates.
Whatever we might say about the U.S., our banks are in
pretty solid shape. Their capital ratios are the best in
history. The crisis in the 1930's was exacerbated by bank
failures. Not this time. Not in the U.S.
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