The Next Bailout: Commerical Real Estate

Critics of the government's bailout of Wall Street banks (the TARP) have focussed especially on the incentive it creates for banks to forego prudent risk management because they expect taxpayers to cushion their losses.

With that in mind, consider the following:

Banks in the U.S. "are slow" to take losses on their commercial real-estate loans being battered by slumping property values and rental payments, according to a Federal Reserve presentation to banking regulators last month.

The remarks suggest that banking regulators are girding for a rerun of the housing-related losses now slamming thousands of banks that failed to set aside enough capital during the boom to cushion themselves when the bubble burst. "Banks will be slow to recognize the severity of the loss -- just as they were in residential," according to the Fed presentation, which was reviewed by The Wall Street Journal.

Do you think banks are slow to realize these new losses because of the lessons they learned from TARP?

"Those who cannot remember the past are condemned to repeat it." - George Santayana.