Commercial Loans @ Smaller Banks

Article in Business Week on smaller banks with large commercial real estate exposure.

One more example of moral hazard, people loaning money that is not theirs have little incentive to watch over how it is spent. Especially during a rising asset bubble.

If vacancy rates rise, banks will roll over the loans instead of seizing the properties (because the properties cannot be sold).

Take a que from the S&L crisis: "A rolling loan carries no loss"

I thought this quote was pretty interesting

The missing piece to the commercial lending puzzle that's critical is whether—and in what form—securitization will return, says Ross. "We had a lot of [commercial mortgage-backed] securitization, and that's typically how banks [were able to hand off the loans]." he says. "To survive in real estate, you need an exit. I teach that to all my students."