The Debt Collapse That Will Change A Generation
Small banks are in trouble, small banks are finished. What’s happening is because of the chaos that happened, you know, a couple weeks ago with Silicon Valley Bank, what’s happening is many people are seeking the top four banks for debt. In this video, I’m going to tell you what that means. For people who want to raise money.
So basically it could mean a few things. Number one, people who are want, who want to raise money, it could mean that you, you need more institutional investors for debt. Many people are losing faith in the small banks that have collapsed. So a lot of people have been focusing on more institutional lenders. (debt crisis)
Such as the top four banks. So in case you didn’t know, this is JP Morgan, bank of America, Citigroup and Wells Fargo. So these banks, and I’m gonna tell you a few reasons why. One is because a lot of banks had their value based on the amount of debt that they had, but the like, they literally bought loans because a loan is basically the same thing as a bond.
So they had a lot of bonds, which their value was based on. But the problem is because interest rates. Up so sharply the value of the bonds went down because the value of bonds go. When interest rates go up because you’re paying more money. Because if you own a bond where you’re paying more interest, then the value goes down. (debt crisis)
So that’s reason number one. Number two is a lot of the bonds that were held had to do with commercial real estate because a lot of the, some of the smaller banks, they take more riskier investments in offices and commercial real estate. So the problem is that because a lot of occupancy rates of offices in America has gone down after coronavirus, especially in the west coast, a lot after portfolio.
Taking a hit. And then number three, this is the obvious one. Poor people are laying people off. So you know when, when the economy slows down and the government’s purposely trying to slow everyone down, you know, things would, would take a, a slow bus. So when you’re in this kind of market, people are gonna have less faith in the banks that just collapse. (debt crisis)
So, The big four banks will be the ones who underwrite more loans. So as a result, and what you’re gonna see, so if you want to raise money for a deal, and what this means for you, if you wanna raise money to buy real estate, you know, you may wanna look at the more institutional players, or somebody more direct to the institutional players or brokers who are more direct to the institutional players, because the underwriting criteria may be more fussy. (debt crisis)
So, because of this, you’re also going to see maybe lower LTVs because the, you know, the big four banks, they’re less risky and more stable. You’re probably going to see more people needing to raise equity because. Is the counterbalance to the debt. Like if it gets go, go to with a more high risk bank, that would probably send you money more quickly.
You may be, may not be able to get as much approvals from those banks, so you may need to raise more equity. And equity just means money that is not owed to anybody. It’s not loan. It’s basically raising money to sell ownership in the project. That money will be more valuable if banks are more resistant to lend, if people are more resistant to. (debt crisis)