See 'em BS

Good update on the state of (and prospects for) the CMBS market.

Money quote - "To the extent that CMBS investors are able to buy and sell the securities again, spreads will tighten, the Fed and the industry argue. That will allow financial institutions that make loans backing the CMBS to free up their balance sheets and make new loans to the industry or refinance existing debt."

It's not too hard to a tighten a spread from infinity. That is to say they are not trading at all (an overstatement, but not much of one). Also, forget about new loans it's a forced refi world out there.

If the value of US CRE is $6.7 T and the leverage is $3.5 T, that's debt ratio of 52%. If property values fall by the noted 45% then the debt ratio climbs to 95%. For all intents and purposes that means no equity and the next stop is the B pieces. That's the way it's supposed to work! That tranche is for speculators anyway. Any institution dumb enough to be larded with B paper deserves to have to drive through this mess. Regulators should ease up on the banks on this until the B piece investors are gone. That's what they're there for. Then of course it will be OK to panic. It will be difficult on all, but it will get done and the pain will work it's way up the credit structure as it was intended.