I live in the fair city of Oklahoma City where we have too many shopping malls for our population. One of these malls is Crossroads Mall on the south side of the city, plunked down where I-35 and I-240 intersect. I-35 is the main north-south interstate in OKC, and I-240 is an interstate spur that goes east-west connecting I-44 on the far SW side of town with I-40 on the east.
You would think that this would be a primo location for a mall in the city as it would be on the route for the many commuters who live in outlying towns like Moore (south of OKC), Norman (south), and Jones (east). Unfortunately, while logical, it is not true. And now, Crossroads Mall, a slowly dying mall, is owned by the Federal Reserve, as the only physical collateral the Fed has for a $29 billion dollar 'loan' they made to JP Morgan Chase so JPMC could buy Bear Stearns.
Reuters (and why would our MSM outlets not follow the money?)
That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties.
It is hard to be precise because the Fed has not published specifics on what it now owns. The only reason that Crossroads Mall has surfaced is that it went into foreclosure in April.
The reason the mall went into foreclosure is because it is a mall: 1) without any anchor stores. 2) without many of the smaller stores and even food court restaurants are shut down. 3) on the SW side of town, and the large majority of mall shoppers go to two other malls on the NW side of town. 4) have you ever been to a largely deserted mall? it's spooky.
Crossroads is a casualty of the faltering commercial real estate (CRE) market across this country. CRE depends on actual job growth to underpin its value, as most CRE is related to retail. There are plenty of other spots in Oklahoma City where you can see the faltering CRE market, usually strip malls half or a quarter occupied, poorly maintained, parking lots mostly empty. But Crossroads is a special example, because only a couple of years ago, the mall was largely occupied by shops, with 3 of its four anchor pads with major stores (Dillard's, Macy's, JC Penny's). Now their gone and with them many of the smaller stores (and jobs that came with them).
And now you, me, and everyone in the US is a landlord for this dying whale. I think that may be the case, though I'm not really sure since it seems that the Federal Reserve isn't quite owned and operated by taxpayers. According to the Reuters article
. . . was brought out of foreclosure in April with $77 million in debt, according to Ann Marie Randolph at the Oklahoma County Sheriff's office. It is now up for sale for $24 million.
Paul Ravencraft, an investment broker with Price Edwards and Co. in Oklahoma City retained by the Fed to sell the property, said the current sales climate was tough.
"Financing will be difficult, and it will probably require a lot of equity," he said.
Losses are potentially at taxpayer's expense because the Fed generally makes a fat annual profit running the country's payments system and other operations, and any losses reduce how much it can pay out to the U.S. Treasury, and hence taxpayers.
The Fed's $29 billion bailout of Bear Stearns was secured by a portfolio of Bear assets that included $5.5 billion in commercial loans, including the note on Crossroads Mall that went into default.
The only reason that we know that the Fed owns Crossroads Mall is because the mall went into foreclosure. So, for all intents and purposes, this is the face of the $29 billion loan to JPMC. There are many other commercial properties in the 'toxic' stew of collateral JPMC offloaded to the Fed under one of its Maiden Lane SPVs (off balance sheet special purpose vehicles, pioneered by the likes of Enron, giving the Fed and its client banks the ability to hide all this trash from taxpayers).
Do you know anyone interested in buying a highly leveraged, low-traffic mall in this wonderful retail economy? A close friend of mine has worked for a real estate agent who specialized in CRE here in OKC for 15 years, who went back to selling houses, last year, because the commercial real estate market in the city is dead. Why? Because Oklahoma City sold many properties as investment properties to rich dummies in other states like California and Arizona. Most of the major apartment complexes in the city are owned by absentee landlords living in California. I know this because I worked on organizing tenants in some of the worst complexes to fight for their rights (a pretty futile effort because landlord-tenant law in this state is fairly weak, and the county judges really don't give a fuck about people). This commercial property will be on the Fed's off balance sheet books for a good long while.
So, yes technically, the mall isn't worth $29 billion, but it is a potent symbol for why the Fed needs to be audited and all of its books forced into the light of day. Of course, if that happens, the economy may fall in on itself once again.
By the way, that $29 billion will be going to pay banker bonuses at JP Morgan this year.
From the Guardian
JP Morgan Chase signalled today that City firms are preparing to make huge bonus payments after it kicked off the US bank reporting season by smashing profit expectations.
The bank revealed it had set aside $7.3bn (£4.6bn) in the third quarter to pay staff, taking the total remuneration pot for the first nine months of the year to $21bn, 23% more than at the same time last year.
If they set aside another $7-8 billion for the 4th quarter, it looks like JP Morgan will have turned that $29 billion Fed loan (where the Fed got Bear Stearns trash and JPMC got the profitable parts of Bear, the parts making fat bonus loot) in $29 billion in bonuses. Ain't America great.
edit: proofing errors
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