Commercial Loans and Fun Blog

George's "I Am Retarded" Zoom Party is Coming Soon - Hooray!

Posted by George Blackburne on Tue, Apr 25, 2023

Screen Shot 2023-04-24 at 7.36.38 PMZoom Party Soon:

China will clearly NOT attack Taiwan this April, so I was wrong.  Hooray!  I would gladly be the object of some good-natured ribbing rather than for the U.S. to lose 13,000 high-trained sailors aboard two aircraft carriers and their supporting ships.  That's what most war games project we would lose.


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I will let you know soon of the time and date of my Zoom Beer Party entitled, George is Retarded.  Haha.  

Be thinking of a joke, a cool short story, or a juicy piece of gossip to share with the group.  I have no idea how many of us will show up, but I am thinking 20 or so.  My last party had even more, maybe 30 or 35 guys and gals.  It was a blast, but I had a hangover for two days.  Ouch.  

Joke Du Jour:

I asked my son if he could go anywhere in the world, where would he go.  He said, "McDonald's."  I said, "No, I mean a country."  He said, "Oh, okay... McDonald's in Japan."


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That was just a joke I read on the internet; but coincidentally, my oldest son, George IV, just came back from his honeymoon in Japan.  McDonalds in Japan apparently has a fried shrimp burger that rocked his world.  Fried shrimp burger - sounds yummy.

Fun Stuff:

My kids are scattered all over the country, so they bought Cisca and me a rotating picture screen that permits them to email pictures to us directly to the picture roll.  If they go to an Easter event with our grandkids - boom - the pictures instantly appear on our picture frame thousands of miles away.  What a thrill.  Why did this invention take so long?  Why did it take people so long to mix peanut butter and chocolate?

Netflix is now showing a great 8-part mini-series filmed in South Africa entitled, Unseen.  Gangsters.  Betrayal.  Suspense.  Gunfights.  The show is absolutely riveting.  It is also quite interesting to see modern life in South Africa.


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Some Thoughts on Commercial Real Estate Lending:

I almost fell off my chair when I read an article on the Motley Fool about the securities broker, Charles Schwab:

"At the end of 2022, Schwab had average tangible common equity of $17.4 billion (George:  This is their wealth.)  Meanwhile, the bank had $12.3 billion of unrealized losses in its available-for-sale (AFS) bond portfolio, which the bank intends to sell before they mature. However, these losses are marked-to-market and have already been subtracted from equity." (George:  They have essentially already recognized these losses.)

"The real concern is in Schwab's held-to-maturity (HTM) bond portfolio, where Schwab has unrealized losses of $15.6 billion.  These have not been accounted for, and if Schwab ever had to dip into this portfolio to cover deposit outflows, the company would be in deep trouble."


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Let me put this in plain English.  Looking back at Silicon Valley Bank, we have all seen how quickly a bank run can empty an institution of all deposits.  Hundreds of billions of dollars were withdrawn from Silicon Valley Bank in less than ten days.

A similar run on Charles Schwab would force the broker to sell off its long-term bonds.  This would force it to immediately recognize the losses, and the losses would essentially wipe out all of Schwab's capital (wealth).

Poof.  One of the largest institutions in America would suddenly disappear.  They would keep the doors open, but the company would essentially become a zombie, staggering from month to month.  


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"But George, the U.S. government would cover the deposits, wouldn't it?"  Yes, probably... unless the country was involved in another pandemic or it was suddenly at war with Russia.  Got money in Schwab?  Hmmm.

My point is that thousands of banks in the U.S. are staggering with unrecognized losses in long-term bonds.  Their capital has been impaired.  To make commercial loans, a bank needs a healthy amount of capital.  Look for commercial real estate lending from banks to slow down dramatically.  

Another Cute Joke:

A good father recently wrote:  I collect all the cell phones and iPads from the kids at night and keep them in my room.  Last night they all set alarms to go off at various times throughout the night.  I'm impressed with their ingenuity and team effort; but they're all still grounded.


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The Stock Market May Be Choked to Death:

It is an absolute disaster that commercial banks lack the capital to continue making a plentiful volume of commercial loans and commercial real estate loans.  Business growth on Main Street is likely to be strangled.  Well, poop!

This is also a problem that will not be fixed quickly.  Remember, if a bank sells off its long-term treasury or corporate bonds at a huge discount, it must recognize that loss immediately.  That loss immediately reduces its capital.  Gotta have capital to make commercial loans.  

On the flip side, if the bank holds on to to its malinvestments (Latin for crumby, stupid investment) in low-yielding, long-term bonds, there is always the chance that interest rates will come back down.  Hope springs eternal.


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So the bank is stuck with a long-term bond yielding 1.75% while it is paying 2.5% to 4.25% for deposits.  Every month the bank losses more money, slowly eroding its capital.  It is death by slow strangulation.

Did I mention that you gotta have capital to make commercial loans?  Do you really want to hold on to your stocks right now?

This is going to sound self-serving, but 10% to 11% trust deeds from Blackburne & Sons are looking awfully attractive right now.  

Kinda reminds me of when I was a disgusting bachelor hound dog.  I learned to stay late at the night clubs.  I somehow got cuter (and taller) as the night went on.  



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Topics: Banks Being Strangled