14 ms·

Man, with (currently) four comments mentioning that this is "what bankruptcy is for", I think the point of the article might have been missed. This isn't some s

• gremlinsinc 6y ago
  isn't that the point of capitalism, the fit live the poor die? Let the poor malls die, if their business model fails. We shouldn't force a failed business to last longer than society needs it to, otherwise that's something beyond capitalism.
  • soperj 6y ago
    the point though they're making is that if they die, then it can massively affect the banks. The knock on effect could be huge.
    • fl0wenol 6y ago
      Oh well, those banks should have had a backup plan </s>
      • Bombthecat 6y ago
        The backup plan is state money.
        • DSingularity 6y ago
          No. The backup plan is to screw the people. Slash interest rates, eliminate fractional reserve requirements, and buy corporate bonds and securities.
          • munk-a 6y ago
            I disagree - their backup plan is getting bailed out. What you listed above is just standard operating procedure for them on a day-to-day.
          • true_religion 6y ago
            Banks being bailed out has been national policy in the US since the Great Depression. Previous to that there were 3 national panics and bank runs, and banks were considered juicy targets for robbers as well. The federal insurance program made it so people could trust in banking again. Now I do think that the policy has gone too far. Bank investments should receive any bailout, those are part and parcel of the normal functioning market.
            • linuxftw 6y ago
              You don't have to worry about bank runs if you're not a fractional reserve bank. People were right to not trust banks, banks were fraudsters, loaning out money that wasn't theirs, then when people caught wind of it, the system collapsed. The real laws should have been 'banks shall not loan out money from a depositor's account' and the problem would have been resolved. Investors could have loaned out money. Insurance could have protected against bank robberies, similar to how any kind of insurance works against theft today.
  • simonh 6y ago
    In a situation like this, capitalism hits its limits. Don’t get me wrong, Im a thorough going capitalist. To me it’s simply a consequence of respecting individual freedoms and individual property rights. The rest of capitalism flows from those two principles. In this situation though, when there is a threat to society as a whole either military or natural, there’s a legitimate role for society to pull together and coordinate our actions. That’s what government is for. All societies can benefit from consensus and leadership, especially in situations like this. If their business model really fails, then fine, that’s because there’s enough value in alternative providers that these ones are no longer needed. However in temporary crises it’s possible that the process of dissolving businesses can leave a gap in the provision of valuable or even vital services that the market cannot fill fast enough. Markets are incredibly powerful, but they aren’t omniscient or omnipotent. This is why although I’m a believing capitalist, I think there is a role for regulation and even bailouts in extraordinary circumstances. I’ll even extend that to individuals, a crisis can hit any of us just as it can hit a business. I don’t see that necessarily as socialism, just good management when done judiciously and proportionately. Ultimately it’s about fairness and good outcomes. I’ve no time for ideologies.
    • valuearb 6y ago
      I’m fine with bailing out companies as long as the owners and managers forfeit all their equity.
      • munk-a 6y ago
        It's not an easy thing to find out who did what - trying to figure out which managers and owners were purposefully over-inflating equity to secure larger loans (or whatever) from those who were duped by the other managers and were just trying to keep the ship afloat is a really hard problem. And, in this fun world, you might find a terribly over-leveraged business where no one ever tried to act fraudulently but some vulture capitalist consultant helped "ensure access to liquid assets" and is now in Kiribati watching the world burn.
        • true_religion 6y ago
• oneplane 6y ago
  On the other hand: what would they go do about it then? It the business fails it fails. It's not like you can pretend it is not failing and have them pay rent with their non-existent money.
  • ProAm 6y ago
    isn't this the plot to the movie '2008'
    • loktarogar 6y ago
      if that's a movie, it's impossible to google
      • sp332 6y ago
        This is the only movie I could find with the literal title "2008": https://www.imdb.com/title/tt10882960/ https://www.imdb.com/title/tt10882960/ And Wikipedia doesn't have an article on any.
        • throwanem 6y ago
          Preeeeeetty sure that's a joke, likening the events of the previous big crash to a film. Speaking of films about the previous big crash, you could try "Margin Call" if you want a very straight-faced (to say nothing of po-faced) take, or "The Big Short" if you prefer something that, while no more genuinely incisive, is at least willing to pretend as though it were.
      • ProAm 6y ago
        I was just referencing the 2008 financial crisis where the US literally printed money to save businesses that should have failed.
        • loktarogar 6y ago
          yeah, I felt that that could have been the reference there, but the "movie" added onto the end just threw me right off
• methodin 6y ago
  I would have assumed malls were already on the out prior to COVID - I assume this is just accelerating the timeline? I think every mall the knew of growing up and in college is no more except for the largest (Kind of Prussia). Did your Malls usage also include stripmalls?
  • user5994461 6y ago
    Have a look at the chart a the bottom article. Looks it was going down about 5% per quarter during last year.
  • dfxm12 6y ago
    FWIW, Franklin/Philadelphia Mills, Neshaminy, Moorestown, Plymouth Meeting, Cherry Hill & Deptford malls are all still open & have some overlap with shoppers in KOP's area. There's nothing wrong with not knowing a lot of malls, but come on, you have to qualify your statement a little bit, because your comment doesn't make sense to me as someone who can drive to KOP and at least a half dozen of the other malls I've been to when I was younger.
    • methodin 6y ago
      I should have qualified that KOP was the largest mall I knew of which is why I called it out. I did forget about Springfield mall which is still alive I assume. https://en.wikipedia.org/wiki/Promenade_at_Granite_Run https://en.wikipedia.org/wiki/Promenade_at_Granite_Run is turning into a classic shopping center which was my closest mall growing up. In Pittsburgh https://en.wikipedia.org/wiki/Century_III_Mall https://en.wikipedia.org/wiki/Century_III_Mall is getting turn down, Ross Park Mall is declining and Robinson Town Center was half empty the last time I was there ~5 years ago. I can't speak to malls I didn't frequent. Although "still open" isn't exactly saying much either on your end - how many stores are empty? Are they on the decline?
      • dfxm12 6y ago
        "Still open" was your criteria, not mine (as in when you said the other malls were "no more").
• Digory 6y ago
  >ghost towns ...if rents don't fall. And maybe they should.
  • derefr 6y ago
    I think I've seen it stated that property developers and property-management companies are often heavily leveraged, such that they can't lower rents; in about the same way that a VC firm with a ten-year investment time horizon on their fund can't invest in your startup if all your valuation-growth will come only after 11 years. In both cases, the lenders and shareholders of the firm, have contractually obligated the firm to have specific returns (and often have built financial instruments on top of those predictable returns, which is why they bothered to invest in the first place!) So the firm itself is destined to either return the predicted profit, or die, with no middle road.
    • simonh 6y ago
      Then they are doomed. Their current tenants can’t afford the current rent, and no new tenants are going to come along at that rent level while this crisis is still ongoing, so what are they going to do? If the current tenants can be viable if rents are reduced, along with other cost saving measures, then maybe that’s a least worst outcome for society and the landlords. Ultimately though, to me, the actual business leasing the property, employing people and providing service to customers is doing more for society and the real economy than a heavily leveraged management company. Those retail businesses don’t deserve to exist on any terms, but if they do have value, then I think they’re worth giving a second chance.
      • derefr 6y ago
        The property management company isn't really a company per se; it's more like a conduit for money, an instrument. If that instrument defaults, it's not of so much concern that a property management company will die; but rather, that the companies who were on either side of it, relying on it as a conduit for money to flow through, will end up illiquid, unable to exchange through that instrument. On one side, that's large investors, e.g. mutual funds. So the markets will go down. On the other side, that's the businesses themselves. Having no access to financially-healthy property management companies to rent from, is a lot like having no access to loans: it limits your choices as a business. Maybe the valuations of these properties will crash without property-management companies around to compete over them, and businesses will be able to afford to buy them directly. But more likely, as we saw in 2007, the commercial real-estate market will just become illiquid, with everyone who is currently holding empty commercial property (i.e. mostly banks, after a presumed default or bailout of PMCs) refusing to sell it "until things recover", so that they don't have to write down a loss. And that means there won't necessarily be any commercial properties on the market for these businesses to buy into in place of their previous rentals.
• cblconfederate 6y ago
  But will this lead to a great recession this time?
• gruez 6y ago
  >But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities. I wouldn't worry about that. I fully expect the federal reserve to "fix" this by buying the toxic assets with printed money.
  • timy2shoes 6y ago
    We can't have large investors losing money on any of their (inherently risky) investments. How will the market work if investors can lose money?
    • coliveira 6y ago
      This has always been this way. Major investors will not plunge into some big investment without some kind of support from governments. The difference is that now we see this support given after the fact.
      • nickff 6y ago
        Major investors used to risk capital on large assets, but government backstops have really changed the game. Perceived risks have gone down, as have returns. Many people cite the 1984 bailout of Continental Illinois as a turning point, but there are many examples before and after that.[1] [1] https://en.wikipedia.org/wiki/Bailout#Examples https://en.wikipedia.org/wiki/Bailout#Examples
      • Tiktaalik 6y ago
        socialize losses, privatize gains. :\
        • z_ 6y ago
          Lemon Socialism https://en.m.wikipedia.org/wiki/Lemon_socialism https://en.m.wikipedia.org/wiki/Lemon_socialism
    • fortran77 6y ago
• Ijumfs 6y ago
  Oh no, not the poor poor commercial real estate developers! Anyway all the malls died like decades ago. Have you been to a mall lately? As far as I can tell the only people who go are folks engaged in drug transactions and busloads of tourists from SE Asia.
  • res0nat0r 6y ago
    The implication is that this, along with the rest of the current collapsing state of the USA is going to just exacerbate poverty and local decline across large parts of the country.
  • smt88 6y ago
    Sadly the RE people will be fine. They were sitting on a lot of cash, and they're now converting retail spaces into high-tech distribution centers. The people who will be screwed are retail workers.
  • sharklazer 6y ago
    This isn't just malls. This is concerning ALL retail/commercial real estate, a lot of which has still been heavily used. Behind this is a lot of overvalued debt, which is at risk. Large institutions essentially treat this debt like dollars and have a bunch of their holding spread across a bunch of mortgage-backed securities such as these. Effectively, debt needs to be written off, and as such, "dollars" will disappear. This could result in some serious deflation.
  • paulryanrogers 6y ago
    Malls are also a place to walk, shop, and play for families during winter. In colder areas it's often dark sooner so outdoor activities are more limited.
    • Ijumfs 6y ago
      They used to be. That all stopped in the 1990's.
      • 6y ago
• commandlinefan 6y ago
  > Malls are going to start becoming ghost towns ... even more.
• throwanem 6y ago
  Malls being ghost towns is a side story. After the 2008 residential MBS crash, as I understand it, a lot of that money moved to the then relatively stable commercial MBS market. If that market goes toes up in turn, with this... (That hasn't been in the news for a few months, so I had to look around for some perspectives. Cf. https://daily.jstor.org/the-commercial-real-estate-markets-impending-crash/ https://daily.jstor.org/the-commercial-real-estate-markets-i... and, perhaps more controversially, https://www.propublica.org/article/whistleblower-wall-street-has-engaged-in-widespread-manipulation-of-mortgage-funds/amp https://www.propublica.org/article/whistleblower-wall-street..., suggesting that some of the same practices that turned the residential market into a crash-in-waiting may have been applied in the commercial market as well.)
  • slowmovintarget 6y ago
    It's a bit worse than that. The same practices that caused the 2008 crash came back in the guise of "non-prime mortgages". They are functionally identical to sub-prime mortgages. The new laws did nothing to prevent this. They weren't meant to. We had a law designed to stop it that was enacted following the Great Depression. It was called the Glass-Steagall Act, passed in 1933. It was repealed in 1999 during President Clinton's administration... because Citigroup was too big to fail, and they promised to be good... honest. 2008 was an opportunity too great to pass up. Congress used the opportunity to enact a Federal bureaucracy that controlled banking and is not directly answerable to the Executive branch. This was the Dodd-Frank Act. Congress could have restored the rules in Glass-Steagall, which would have broken up Citigroup as a side effect. But they didn't. Seems like recipe for disaster.
    • throwanem 6y ago
      Oh, hey, I hadn't looked in detail at how residential paper works these days, but I think you may be on the mark here. I can't speak to the deep-state stuff, but in terms of mortgages, "qualified" and "non-qualified" appear to mean substantially what you say they mean. I'm sure that can't possibly go wrong. Especially since the entire SERP when I looked up the "non-prime" term you used was pages put up by fly-by-nights to reassure the suckers that there's nothing wrong with the paper and if anyone tries to tell you otherwise, you should probably punch them in the face.
• brudgers 6y ago
  Commercial mortgaged backed securities are an investment. Investments come with risks. Bankruptcy is just part of that risk. The US is thirty years out from the previous commercial real-estate reckoning. The S&L crisis. Everything that was booming a year ago was built on top of that reckoning.
  • martinald 6y ago
    Exactly. That is the whole deal with being a commercial landlord. It isn't just "upward-only rent adjustments" every 5-10 years and cream a load of profit. There is meant to be some risk in return. In London a lot of commercial rents in newly gentrified areas have went up 10x+ in the last 10-20 years. There has been an awful of lot of value transferred to these landlords for really not a huge amount of work in many cases.
    • sharklazer 6y ago
      Yes, but we're overleveraged. And I mean "We're" because the people who hold the debt is actually quite spread out and obfuscated. I don't disagree with you in principal, but unfortunately, we have a parallel problem of how the debt market works, which is essentially to generated and then sell the debt to investors, diffusing the "risk", or rather, I think of it more as displacing it. Much less incentive for active participation in investing via debt. People who end up holding the debt are many steps away from being able to have conducted due diligence. Not to harp on a point, but the big theme of this whole fiasco starts with the displacement of risk from the risk taker. And since we've permitted that, we're all stuck with it.
      • linuxftw 6y ago
        > People who end up holding the debt are many steps away from being able to have conducted due diligence. And they should face the losses. And maybe learn from their mistakes. And the people that were responsible with their money, didn't take on the risky assets that generated out-sized returns will be able to invest because they preserved capital.
    • 6y ago
• elipsey 6y ago
  Lots of things were already ghost towns. Even before covid, I am always seeing people with no buildings, and buildings with no people. I'm in SF now, but I have seen this in cities and small towns, red states and blue states: empty malls, hobo jungles down the block from me, friends with minimum wage jobs sleeping in cars, squatters getting the bum’s rush. I imagine there are good reasons to have less than %100 percent occupancy like renovation or tenant turn over, but I’m talking about the same places standing empty for months or years without a sale. If capitalism does what it says on the tin, I don’t get why can't we have a market cleaning price for buildings. Are we doing too much capitalism, or not enough? Is this just all very efficient but I’m not smart enough to figure out how?
  • lostmyoldone 6y ago
    In many areas you can earn significantly without have tenants, if you can wait a decade to get paid. Having tenants is chore, and might make it impossible to sell the property for a different use. Market economy works fairly well as to get the most value from the least work. If you allow empty apartment buildings, you will have empty apartment buildings if that's likely the best risk/reward for the owner. It's not about too much or too little market economy, it's about accepting the proliferation about the wrong kinds of markets, markets that are not in the best interest of people. We don't accept trade in ivory because that's not good for the elephants, there's no reason to accept apartment buildings left empty when it's to the detriment of people. No economic policy will govern itself, especially not any policy claimed to do so.
    • olalonde 6y ago
      Government regulations are generally to blame for empty apartment buildings. In a free market, it would make very little sense for a building owner not to rent it out.
  • lizardmancan 6y ago
    yes... i guess... think of houses as bars of gold or bitcoins
  • lmm 6y ago
• valuearb 6y ago
  Malls were already becoming ghost towns. All this means is that mall owners will need to be more aggressive about offering rent discounts.
• fossuser 6y ago
  Maybe someone that understands this better than I do can comment, but isn't this something that can lead to CLO collapse and systemic financial system failure (similar to 2008, but maybe not as severe?). Described in this: https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/ https://www.theatlantic.com/magazine/archive/2020/07/coronav... The Dodd-Frank act capital requirements seems like they'll protect banks a bit, but to an outside layman like me it does seem like the CLO risk is similar in structure to CDOs. What am I missing?
  • thoughtstheseus 6y ago
    Banks don’t own much of CLOs compared to other market participants, banks have much more stable and safe assets across the board, the borrowers are not individuals with mortgages but companies with diverse capital structures and interests. They are similar to CDOs and there are certainly those taking too much risk in the CLO market. The Fed brought up this issue before the pandemic and no one seemed to care...
    • fossuser 6y ago
      > "the borrowers are not individuals with mortgages but companies with diverse capital structures and interests" I'd be skeptical how different this is in practice. In 2008 there was an incentive to give loans to people without caring if they could pay because you could immediately sell them to larger banks that never checked the underlying status of the borrower. With CLOs the borrowers are already selected to be companies in trouble - is the underlying resell incentive fixed if they're still being bundled together? In some ways the selection is worse because while most people need a mortgage no matter how good their credit is, I think business loans are needed more by desperate businesses. At least if the banks don't own as much (like you said) that's probably good. From that Atlantic article: > "A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world." I think the structure of the CLO tranches rely on not all small loans collapsing at once and I'd bet the banks risk models (which already are incentivized towards taking on too much risk) didn't account for a global pandemic forcing everyone to stay at home. I know Dodd-Frank requires them to have lots of capital on hand to protect against this kind of problem, but is it enough? Also for us regular people, what should we be doing? Sell index funds and just buy Amazon? Again, from that Atlantic article: > "For the moment, the financial system seems relatively stable. Banks can still pay their debts and pass their regulatory capital tests. But recall that the previous crash took more than a year to unfold. The present is analogous not to the fall of 2008, when the U.S. was in full-blown crisis, but to the summer of 2007, when some securities were going underwater but no one yet knew what the upshot would be." I don’t work in finance and these topics always bring out over confident know-nothings on HN going on about policies they don't understand (and I don't want to be that), but there are parallels here that seem pretty disturbing. I don't want to be in the Summer of 2007, our institutions are less stable than they were back then and the politics have gotten scarier.
• joshocar 6y ago
  I started saying this last March, the next big crash or rather the biggest fallout from the pandemic will in commercial real estate. Just because of how the industry works, these commercial real estate companies are leveraged like crazy and it's not like you can turn around a rent/sell the property easily in this market. Banks set aside billions last quarter in expectation of this happening.
• humaniania 6y ago
  I recently watched this documentary "Jasper Mall" about the slow death of a shopping mall, it was quite fascinating: https://www.imdb.com/title/tt11262098/ https://www.imdb.com/title/tt11262098/
• pgrote 6y ago
  >But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities. And? Seriously. We either have to choose to be a market that is somewhat free or not. At this point, the government is choosing winners and losers. It is a repeat of 2008. Oh no, it is too big to fail. Someone will come by with the investment to buy what is left. Perhaps they will run it better. Prepare better. We're going through this with airlines and cruise companies now fighting for more money and loans from the government. Perhaps Delta grew too large to be what they are now. Maybe there are too many malls in existence. Maybe the method in which we collateralize mortgages doesn't make sense anymore. Our economy has developed the too big to fail mindset and forgotten, largely, you can lose.
  • patmcc 6y ago
    >>>And? It's a news story, there doesn't have to be any underlying editorial message. Sometimes the news is just "thing happens".
    • koolba 6y ago
      For most publications that time past a long time ago. There’s a limited space so even “presenting the facts” has an editorial bias when you decide which facts you are presenting. The extreme example of this is a political news site that dedicates its entire site to posting anything that paints its opponents or their positions in a negative light. They can all be “thing happens” stories, but the filter alone gives it an angle.
      • seanmcdirmid 6y ago
        The article here is not of that kind. Business publications tend to be the most report-fact-based, simply because their readers don’t make money by deluding themselves with confirmation bias.
      • Wowfunhappy 6y ago
        Well, you have the existence of this article as a counterpoint. :)
• ping_pong 6y ago
  Almost every single horror story of what could happen has NOT happened. Yes, too many people have tragically died, but a lot less than the horror stories of a million+ people. There is barely a recession, and the stock market is at all time highs. There was no supply chain implosion for food. There are no food bank lines. There is no mass homelessness. Basically the Fed and the US government did their job. They stabilized the markets. The state governments (at least the competent ones) implemented lockdowns that cut the virus down. They will stabilize anything that is too big to fail. I'm not too worried at this point, I don't think there will be any big problems. The Fed has learned a lot from the Great Recession and they are acting a lot more decisively than before. And I've lost a lot of money shorting the markets over the last 6 months so I've taken the other side of this and learned a lot (ie. don't fuck with the Fed).
  • rdtwo 6y ago
    I think you saw the flash waited a couple seconds realized you weren’t incinerated and assumed everything is ok. I think you are missing the fact that there is enormous destabilizing energy traveling you way that’s going to wreck your world. It would be like calling the Great Depression over after in 1930 when the market recovered.
    • phreeza 6y ago
      How can we track the progression of this wave? Earnings calls? Any other ideas?
  • newhotelowner 6y ago
    Three things helped to survive majority of the businesses till now. PPP, EIDL, SBA. SBA helped a lot. I have an SBA loan, and they gave us 6 months. Six months are up in October. At this point, we are not making money, but not using personal saving either. I won't be able to pay the mortgage after October.
  • swiley 6y ago
    The lack of mass homelessness is due to: expanded federal funding of unemployment, eviction moratoriums, and deferred mortgage payments. All of these are coming to an end in the next couple months and that’s when the mass homelessness starts.
• duxup 6y ago
  A bubble around commercial real estate that results in competition and lower rents for other businesses... that doesn't sound terrible. Yeah the knock on effects would be terrible, but the underlying results being lower costs for renters, seems pretty natural / appropriate.
• jldugger 6y ago
  > Malls are going to start becoming ghost towns, especially with no anchor stores like Penny's and the since-departed Sears. Pretty sure that already happened. The US built waaay too much retail space[1], and still[2] has an overhang in most markets. And yea, Amazon kinda ate the Sears / JCPenny lunch, which has not helped matters. [1]: https://qz.com/1032723/theres-much-more-empty-retail-space-in-the-us-than-in-other-countries-on-a-per-capita-level/ https://qz.com/1032723/theres-much-more-empty-retail-space-i... [2]: https://amp.cnn.com/cnn/2020/01/08/business/macys-store-closures/index.html https://amp.cnn.com/cnn/2020/01/08/business/macys-store-clos...
  • AniseAbyss 6y ago
    I like to joke that the US economy depends on how much crap people buy in December (and many, many factories in China depend on it too).
• rusk 6y ago
  Sounds like "too big to fail" all over again.