01 April 2009

lenders ignoring defaults

Here is further evidence that nothing is really what it seems in the financial system. The statistics we see on defaults (and foreclosures) are becoming increasingly meaningless as lenders simply decide to look the other way, and allow deadbeats to default without any consequences.

I am not saying that creditors are doing the wrong thing by not seizing assets (i.e. there might be little real value left), but this sure messes up the statistics. The phenomena even occurs in residential lending, with many examples of delinquent home-owners who have been in their homes for a year or more without being kicked out. Even once lenders foreclose, some institutions are reluctant to actually sell the assets at current market rates. It is far better to keep unrealistically high valuations on the books, and just sit on a dead property, than to be forced into insolvency by booking severe losses after selling for cut-rate prices.

There is so much rot going un-reported that God only knows how bad things really are…

Under normal circumstances a company with as much past-due debt as General
Growth would have been forced into Chapter 11 bankruptcy protection by now.
Creditors so far have been willing to let deadlines pass because they believe
there is little to be gained and much to be lost through a bankruptcy.


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