Yet with the crash in all real estate values, banks were left holding a smoldering portfolio of empty shopping malls, luxury hotels, and in some cases fast food outlets. Today CRE values are estimated to be at $3 to $3.5 trillion putting many loans in a negative equity position reminiscent of many individual homeowners. This issue of bailing out CRE was never discussed openly with the American people because it would have never carried any political muster. So what the Federal Reserve accomplished was to create a system where banks were able to exchange toxic loans in place of U.S. Treasuries without taking up an open dialogue with the public. In other words a clandestine bailout.
The problem with bailing out the commercial real estate industry is that it shifts costs from businesses and more crucially big banks to working and middle class Americans. The value of money that Americans now carry is becoming worth less each day with these continued actions. Do Americans make the direct connection? I think the Federal Reserve is making the bet that most will not understand this convoluted connection and simply go on with their daily lives blaming whatever other topic of the day is filtering in the financial press. Without a question however the Fed is making Americans poorer. The values of CRE have fallen dramatically and if we look at the current chart of their values, we see that they are making no immediate comeback:
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