Federal Reserve Crammed On Red Roof Inn Debt

Tyler Durden's picture

Remember that bit about how the Fed only holds the highest quality debt (we forget if it was Tweedledum or Tweedledee who said it)? It appears that's just the latest lie in the Fed's endless catalog of misrepresentations. According to TREPP, 11 properties held by Red Roof Inn hotels saw foreclosure actions initiated on them by CMBS special servicers, and are now being sent to the auction block. Guess who is most impacted by this action? Why, the Federal Reserve of course.

The properties are part of the 131 Red Roof hotels which special servicers Centerline and LNR Partners are "working out" in restructuring $368 million of debt. As Debtwire reports: "The securitized debt backing the properties held within four CMBS trusts, represents a portion of the total USD 775 million senior mortgage. A good portion of the remaining USD 407 million in debt, held on lenders' balance sheets and intended for later securitization, landed with the Federal Reserve via Bear Stearns. The Fed holds $444 million in Red Roof Inn debt, which appears to be a mix of mortgage and mezzanine debt, through its Maiden Lane I vehicle." And here is why you should not trust any updates of Maiden Lane I from the Fed: "This month, the appraisal reduction amount on the Bear Stearns loan was upped from $64.5 million to $102.3 million, according to Trepp, which amounts to a roughly 40% reduction in loan balance."

The problem, as Willem Buiter points out, is that for all these valuation shortfalls (not so much the Fed which can print to "grow" into its balance sheet, but all other banks) to be filled the US will need to institute unprecedented debt inflation. The race to the fiat paper bottom is unavoidable.

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sangell's picture

Jan. 31, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- A battle is heating up in Fairview over a plan by a private social agency to turn the Red Roof Inn into a permanent home for street alcoholics who can't stop drinking...

So maybe the Fed can become a rehab center too.

glenlloyd's picture

their plan sounds pretty consistent with the present use of those abandoned hotels/motels. All that's missing are the hookers.

The real craw in this is that while it may provide shelter it 1) does nothing but house the boozers and offers no mechanism for bringing them mainstream (not that they could find a job anyway) and 2) sets a precedent for the use which can be used later to justify more of the same, which as we know will never result in an exit strategy. Once you start there's never an end, it just keeps getting bigger.

What about the problems it brings to the surrounding biz / residents? Who takes responsibility for the monitoring? Who pays for the additional police support it requires? Will it be one of a zillion entities that will siphon off more funds at the fed teet?

I tend to oppose these ventures simply because once you have one you'll never get rid of it no matter how hard you fight. I have gobs of social service agencies in my hood and we will never be rid of them...never, no matter how hard we fight we're always painted as the bad guys.

knukles's picture

Nothing like Enabling

Gives new meaning to ZIPR, York, Gag and Puke

buzzsaw99's picture

Yeah, but, I just saved a bunch of money on my car insurace by switching to Geico!

filletandrelease's picture

Which reminds me of the Red Roof Inn's corporate slogan..."If we charged you any more, you couldn't afford the hooker."

Rainman's picture

What is hidden from view does not exist. Every ostrich knows this.

Cognitive Dissonance's picture

Reality for each person is what that people chooses to see at that moment and judging by the S&P ramp this morning, people are choosing to see nothing but net. As insane and irresponsible as this might be, it is the reality of the moment.

An alternate reality, what you and I might say is the real reality (just writing that is difficult) will be perceived when the people wish to see it. Or more accurately, when they can not longer not see it. No amount of screaming in their ears will change the fact that they simply don't wish to see this insanity as insane. Since the fiat currency is based upon nothing other than faith and belief, it is only faith and belief (or lack there of) that determines if it is real or not from moment to moment.

Insanity is ultimately determined by the majority. When they no longer wish to deny what's going on (or "reality" intrudes beyond the obscuring Ponzi haze) that reality will become the "new" only real reality.

We really can't expect zombies (or the insane or maybe un-sane) to act any way other than the way zombies act. Who was that Nazi who said governments can only act imperially for as long as they can shield the public from the consequences of the governments (and thus the peoples) actions?

nevadan's picture
I'm not sure if this is the one you are referring to, but it is a good one “Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”

Hermann Goering, during the trials at Nuremburg

BlackBeard's picture

I hope he cries in public (Bernanke) when it all come crashing down on his big, bald, deluded head.

Gordon_Gekko's picture

When the end comes, it will be more horrific than even those who know exactly what's happening can imagine.

glenlloyd's picture

agreed, we probably are privy to a fraction of the bad behavior that's going on. This is why audit the fed needs to be done, regardless as to whether I think we'll get it or not...it needs to be done.

Cognitive Dissonance's picture

".....regardless as to whether I think we'll get it or not...it needs to be done."

We have been reduced to wishful thinking and illogical circular reasoning. I fully understand what you are saying but it sounds like you just said........

Regardless as to whether I think I'll ever get around to cleaning out the garage or not, it needs to be done.

This is the kind of thinking that drives a (wo)man insane if that (wo)man has any sense of sensibility or responsibility. Just as the Fed is rewarding the risk takers and irresponsible among the financial world, so it this economic behaviour rewarding the irrational and insane among us. It rewards denial and punishes prudence.

sheeple's picture

When I talk to people about precious metals and coining terms like "fiat currency", they say I live in a cave.

drwells's picture

Yep. We bears will hardly be less horrified than the blind bulls. When I really take the time to think about it, I can see why TPTB are playing kick the can for all they're worth. When I see what's on the other side I'll probably beg for a few more kicks.

digalert's picture

Perhaps Sheila and her FDIC band can stay at Red Roof Inns as they travel the country closing banks.

Anecdotal Economist's picture

The Fed's built-in annual loan loss provision (its "earnings," only the net of which are remitted to the Treasury) give it ample sources of funds to cover a few RMBS and CMBS losses here and there. It's all good... 

sdb5057's picture

Well, I for one, am glad that the fed would wisely spend our money to keep such quality establishments available in order to facilitate a "bailout" for the well respected prostitution industry. Now if we could only get some regulation for the hourly rates that each property charges in order to provide more "liquidity" for the main clientèle of these red mill inns...err.. i mean red roof inns ....

b_thunder's picture

Hey, Neil Barofsky, you have a chance of a lifetime to unravel biggest lies and conspiracies of the modern time.  And perhaps become a national hero... mayeb get your face on a coingn, or a $1,000,000 bill.... 

Mitchman's picture

Yeah.  People will be buying loaves of bread with that $1,000,000 bill pretty soon if the egregious Ben has his way.