Business

BANKS WORRY ABOUT NEXT WAVE OF LOAN DEFAULTS

THE hope in Washington is this: Banks that failed their so-called stress test will raise capital on their own — as many have already done — and then go about the business of giving loans to deserving businesses and homeowners.

But there are several obstacles, including the fact that the next big wave of loan defaults might be about to occur.

And the problem won’t be, according to a source, in credit cards.

Phillip F. Blumberg, chairman of Blumberg Capital Partners, thinks banks are really worried about the commercial real estate loans they issued during the orgasmic 2000s. That’s the reason, says Blumberg, banks are remaining conservative in their lending.

Credit cards may be bad but commercial real estate is worse.

“It’s absolutely frightening,” says Blumberg, who adds that he sold most of his real estate holders before the bust.

And the most dangerous time for banks will be 2010 to 2013 when $1 trillion in commercial real estate loans will mature and — like homeowners before them — owners of commercial properties will need to refinance.

Blumberg estimates that $236 billion in commercial real estate loans that were turned into securities will need to be refinanced in this period and that $67 billion of that amount “will be lost.”

“We are on the brink of one of the worst commercial real estate financing markets ever,” he said.

And then there are construction loans, which will be a problem because the builders who took them out in many cases won’t be able to complete projects in this horrible economic environment.

Are banks healing? Maybe at the moment, but says Blumberg, “the commercial real estate industry is about to smack them next.”

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The Labor Department will probably have to make a massive correction to the recently released employment figures.

Nearly two weeks ago the department announced that 539,000 jobs were lost by the US economy in April.

That was — as hard as it might be to believe — good news for the financial markets, which were expecting a drop in the 620,000 range.

Less bad is the new “good” these days in the world of stocks.

I looked into the matter and, as I thought would happen, the government was able to only get to the better-than-expected number by some mighty optimistic assumptions.

And those assumptions will not hold up when the Labor Department takes a closer look at the figures during revision time.

First, let me explain that I’m not accusing the Labor Department of any politically inspired numbers fudging.

This is simply the way the bureaucratic machine does things — it comes up with an initial number, including guesstimates, and then revises it into something more realistic.

Nor am I trying to suggest that whatever figure the Labor Department puts out in the first go-round is supposed to be anything close to realistic.

The jobs figures put out each month by other organizations, like ADP, are more likely to be closer to a true picture of the job market.

Still, Wall Street lives or dies by the Labor Department’s monthly employment figure. So let me tell you one of the problems.

The 539,000-job loss that was announced by the Labor Department on May 8 included a guess (a crazy one, in fact) that 226,000 positions were created by newly formed companies.

The department calls this its birth/death model, although the “death” part of this applies only in the January numbers.

During the remaining months of the year, the government assumes more companies are being born than dying.

And Labor’s comput ers tend to make April one of the biggest “birth” months, this year ignoring the fact that the country is in a serious recession.

Those 226,000 jobs that the government thinks magically appeared along with new companies in April were only slightly less than the 267,000 jobs the Labor Department thought were created by new companies in April, 2008.

The trouble is, that original 267,000 job estimate for April 2008, upon closer inspection by the department, had to be reduced to just 176,000.

While the Labor Department won’t say if this year’s guesstimate will be coming down, a source there doesn’t argue with the logic that a reduction will be necessary.

So if the 539,000 headline figure for April isn’t accurate, how big would the number have been if the government didn’t make these assumptions?

That’s hard to say, but it is clear that the number could have turned Wall Street’s pleasant surprise to a disappointing one.

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My friend John Williams, the economist, says the government admitted in its Monthly Treasury Statement that it was changing the accounting for TARP.

The result is that “budget outlays have been reduced.” How nice! Cut back government spending by tweaking the accounting rules.

john.crudele@nypost.com