A California Business Banker Speaks Out: "It's A Classic Late-Cycle Red Flag"

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

On occasion, I get emails from a commercial banker friend who lives in California. Today he provides anecdotes from a business banker’s perspective.chair

Hey Mish


It’s been a while since my last email. Here are some views from this business banker’s chair.


I had lunch with a financial planner today, and he said the new tax plan coming from DC would eliminate tax-deductibility of state taxes. While Federal tax rates might go down a little, the net impact would be higher total taxes via higher total federal taxes due to the loss of writing off state taxes. At least, that is the view for those of us in high state income tax states like CA. He already had clients exiting the state.


The gentleman I had lunch with today is a lifelong financial planner, mostly on the insurance side. He stated that the insurance industry today is in worse shape than that of the banking industry during the prior recession, and yet we hear very little about it. If so, we both agreed that the world isn’t ready for an insurance industry meltdown anything like that of the Banking industry during the last recession.


I provide financing to a lot of subcontractors (the trades). While visibility 9-12 months looking forward has looked good for the past few years, I finally have a client (a framing contractor for the major home builders) that has said something to the contrary. He stated that some of his major home builders are starting to see some issues in selling inventory in CA. Without going into specifics, he also stated that he senses something is changing in their world.


I’ve seen a spike in the number of unqualified (financially and expertise) in people who want to get into flipping homes. It’s becoming vogue amongst those who lack the qualification to do it at a time when the values in the San Francisco Greater Bay Area have never been higher. Somehow, 2007 peak real estate values were crazy, but the value today that are higher than 2007 are justifiable/sustainable. That’s a classic late cycle red flag.


During the last 3-4 years, I’ve seen more people who seek to finance new restaurants than any time in the past 20 years. This industry seems frothy. With rising rental costs for space and higher minimum wages for staff, I’m seeing pressure on the cost structure of existing operators squeeze them, while people are rushing to build out a new restaurant.


Finally, for the past 12-18 months, I’ve been flooded with new loan requests. I haven’t been this busy with new loan requests since the last cycle Top. Again, this seems like another last cycle red flag.


Hope all is well



I had a friend tell me one time: “Mish if you ever get the urge to start a restaurant, please call me. I will talk you out of it. Some succeed, but most lose their investment or struggle for years barely surviving.”

Everyone thinks they are different. But they aren’t. After a run up in property values, rising minimum wages, and increased competition, this is the worst time in the last 10 years.

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barndoor's picture

I don't understand - flipping a house would destroy its value.  The structure of the roof would never withstand the weight.  Plus it would look strange.

DontGive's picture

Gonna be a lot of good deals coming up - when the house flips them on their asses.

Gen. Ripper's picture

The best deal is GTFO of this state ASAP

migra's picture

One day it will happen but how many years will that be and how much money will be lost waiting.

Dane Bramage's picture

If the sea should swallow up my house
I will turn my rooftop inside out and the wind will be wailing
But I will be sailing faster

Oh the elements I do not fear but I fall apart when you appear 
'Cause you are the greatest
The greatest disaster




GodHelpAmerica's picture

The fed's economic models will make sense of this for you.

Offthebeach's picture

It's a krugman thing.  You wouldn't understand. 

All Risk No Reward's picture

Krugman is a modern day Goebbels.  He isn't stupid, he just plays stupid to dupe the stupid.

"Pretend inferiority and promote your enemy's arrogance."
~Sun Tzu, Art of War

Krugman knows full well that his job is to protect the debt-money system 

Krugman to Lietaer: "Never touch the money system!"

His second job is to promote the idea it is sane to go into insane exponentially growing debt-based money...  money for the dElites for whom Krugman lies (in more than one way, BTW) and INEXTINGUISHABLE debt for everyone else (debt-money is a balance sheet...  debt and debt-money must equal; it is an artifical zero-sum game).

I wonder if they made Krugman sacrifice children in order to put hm up on the perch like they tried to do with the Dutch Bankster whistleblower....  Seems that Krugman position is **much** more high profile than this guy's position...

Body Language: Dutch Whistleblower

Ultimate Red Pill: Ronald Bernard Whistle Blower Testimony [English Voice Over]

Key takeaways...

1. The top level people are Luciferian.  They are **serious** about their Luciferianism, too.
2. They run the drug money.
3. They run the sex slaves and, by inference, the child slave / sex rings.  Just search Bill Clinton, Jeff Epstein, Lolita Express, national security royal pedophile... you get the idea...
4. They are all one group at the top, not many different groups.
5. They cheat their own embargos...  effectively eliminating competition for the goods (Iraqi oil) and then mop it up for themselves at a discount.
6. They want their higher ups to pledge allegiance to their Luciferian club and toprove their psychopathy by sacrificing children (and who knows what they do before they actually murder the child).

These are the demonic people that run the world from behind the scenes and anyone who tries to act like they are stupid and innocent are ignorant and/or complete and total cowards.

MUST SEE! 15 Years Old Girl Survive Satanic Ritual Rapes and Sacrifices (Complete)

Note, this girl is very specific about the grandiose location where this abuse occured.

1. There is no public evidednce the police bothered to get pictures of homes and show them to her in a line-up.  Why are the police protecting these Money People?  Are the top police part of a secret society?  Are the bribed?  Are they in on it?  Is that how they got their job?  All of the above?

2. The interviewer can't possibly be so brain dead as to not realize the police didn't investigate this alleged crime.  Yet, **crickets**.  Again, what allegiances does this reporter have and how did he get his job?

The people who run the world aren't stupid.  We are.

And almost everyone lacks the imagination required to simply look the evidence square in the face and see what is actually there instead of cowaer to our own "safe space."

"The truth will set you free, but it will make you miserable first."
~President James Garfield (before he was assassinated)

And, yes, he knew all about the Banksters and their "money volume" control over society.

Too many people are cowards to the core to even admit this problem exists, let alone do anything about it.

"Most people prefer to believe their leaders are just and fair even in the face of evidence to the contrary, because once a citizen acknowledges that the government under which they live is lying and corrupt, the citizen has to choose what he or she will do about it. To take action in the face of a corrupt government entails risks of harm to life and loved ones. To choose to do nothing is to surrender one’s self-image of standing for principles. Most people do not have the courage to face that choice. Hence, most propaganda is not designed to fool the critical thinker but only to give moral cowards an excuse not to think at all."
~Michael Rivero


sirsmokum's picture

But dude, that makes it worth so much more money in this market!!!

Miss Informed's picture

That's why you flip it twice, real quickly.

Hitlery_4_Dictator's picture

Can't wait for the liquidation phase.....i will be vindicated, one day.

red1chief's picture

Any liquidation will be sopped up by the central banks. they are now unrestrained.

NihilistZerO___'s picture

They have to allow c0orrection in residential RE.  It's killing consumer spending.  The key will be getting in before the next reflation phase takes off.

Hitlery_4_Dictator's picture

I short sold (did it right before obama screwed everyone by counting the difference owed and counting that as income) my condo in San Diego in 2013 and left...I saw the writing on the wall and said F it.  Looks like a lot of other smart people are doing the same.  I can't believe how much worse it has gotten since I left. Now I live in 8.5 acres in the woods and have some actual privacy and freedom.  Not to mention all the nice people out here.  

Hitlery_4_Dictator's picture

Work from home...wife commutes 47 miles.

shovelhead's picture

I used to urinate off the back porch but it scared the livestock.

Abitdodgie's picture

I have got a 140 round trip and i do it in a Geo Metro with 210,000 on it just cannot go over 70 or the radio stops working and then i have to sing thats the worst bit about it.

not dead yet's picture

It has always been counted as income. Bank gives you X amount of dollars and you pay back less and the rest that is forgiven is income. Where you are wrong is that since the bust in 2008 or 9 Congress put a moritorium on this so no one has had to pay taxes on this for years. My daughter inlaws parents are spenders who have filed bankruptcy 3 or 4 times even though both work and make decent income. A couple of years ago their house got repoed and they moved out. Last year the bank gave them back the house free and clear with the only provision they pay the back RE taxes. They fire saled the house and spent the proceeds. I was hoping they would have to pay taxes on their bounty but at the last minute CONgress renewed the moritorium, as they have done every year since the original expired, so they legally paid zilch.

City_Of_Champyinz's picture

I hope your daughter in law learned from her parents, but i am not very optimistic.

swmnguy's picture

Obama isn't to blame for the IRS counting the difference in short sales as income.  That predates Obama.

saveUSsavers's picture


Hitlery_4_Dictator's picture

That condo was 750 sq ft...WITH 380.00 a month HOA, was sold in 2006 for $277k to a Mexican Dishwasher (not making that up)! I was actually approved for 477K mortgage and I didn't even make that much! LOL, I got it for $156k in 2008.

 It did gain back some value but a bad neighbor and an HOA board who refused to pay their HOA's or enforce others to pay either, meant it was not worth hanging on to it. When I purchased in 2008 the HOA was only 190.00 a month.....think about that.  It was turning into a renters dump....where all the owners just rented.  

Plus it was on 8 HWY, the power went out in 2011 (I still think it was a test), IMMEDIATE GRIDLOCK.  In any sort of civil unrest or grid-down situation, forget it.  I suppose I could have waited another 2 years and sold it and made some coin and take a chance of the house being robbed and the car broken into again. Or, even worse a major disaster could have happened, locally or nationally. Oh, I forgot to mention Fukashima impact.  

I bounced. 

Money is just not worth it sometimes.  It's not been perfect here either of course, I got toxic mold poisoning and almost died. I am recovering now, it takes time to get it out of the body.  But if I had to do it all over again I would do it again.  CA is DONE. 

JRobby's picture

This clearly seems to be the case thus far in this "cycle" (shit show)

Of course we know "who" owns the CB's.

Newbie lurker's picture

I too am waiting for my vindication. So Cal resident for 35 years and can't wait to GTFO.

Theosebes Goodfellow's picture

~"Can't wait for the liquidation phase..."~

Damned straight. I sold out of California in January and am sitting in cash. Come calamity, come. I'm currently sitting on the Fox River in Wisc. killing White Bass by the score. Fuckers won't stay off the hook.

saveUSsavers's picture

everything selling at $350/sq ft around here and up, 92011 FOMO chasers

TheStressMan's picture

SORRY, there ain't gonna be no liquidation phase!  Let's refresh everybody's memory here.  REMEMBER...banks don't have to mark their collateral (i.e. 'actual' home value(s)) to market.  Beginning around 2012, Blackstone got a 'little' discount on some of these bank held foreclosed homes by being able to buy in bluk with access to some of the FED's ZRIP money (opinion here, but I'd bet a couple paychecks that they have access!).  The rest of the foreclosed properties that have litterally sat years (the real shit), are selling at or just below the 2006/2007 levels, if not already surpassed.  Banks won!  I'd say almost all of their 2008-2010 foreclousure invetory is off their books here (Portland, Or).  Currently at this time, you do need verifiable income, but that's about it.  Lending standards have lowered.  I've talked to several mortgage brokers.  They say almost all deals they are doing are some sort of govt backed loan...mainly FHA.  “FHA loan rules state that borrowers with credit scores at 580 or higher are eligible for maximum financing for FHA home loans, which requires a 3.5% down payment from the borrower. For those with credit scores between 579 and 500, 10% down is required.”  Not quite the NIJA loans back in the day, but I wouldn't loan my savings out to someone with those numbers!  The common theme from the brokers I talked to is:  "it's the path of least resistance!"  Guess who's backing all those loans!   The .gov aint gonna let those prices come down.

But...maybe it's different this time!

moorewasthebestbond's picture

This guy's source is B-ig B-lack C-ock?

khakuda's picture

Someone has been watching too much internet porn.  Oh, wait, that's me.  Never mind.

barndoor's picture

Actual LOL.  Thanks khakuda!

ebworthen's picture

Housing Bubble 2.0.

I'm shocked I tell you, shocked!

JonNadler's picture

So the translation is that the author is shorting the real estate market in California? The FED will buy not to worry

jamesmmu's picture
Investors are pulling out of the U.S. for the first time in years


red1chief's picture

Why do I keep seeing articles about financial meltdows? Don't these guys know the central banks are monetizing EVERYTHING?

serotonindumptruck's picture

This California Business Banker is like a virus or parasite, much like all bankers and government workers.

They make their living off the backs of those who would do an honest days labor.

The only successful parasites that exist in nature maintain their longevity by not killing their host.

Investment bankers are like the Ebola virus.

They kill a lot of hosts until there are no more hosts to kill.

Then they suffer extinction.

nightshiftsucks's picture

I live in the SF East Bay suburbs.I bought my house in 2000 for $400k and now houses around me are pushing $1,000,000.This is bigger than the 2008 bubble and ready to blow.

CJgipper's picture

600k?  I'd already be out.  Let so.done else hold the bag on that house while you enjoy the cash.

saveUSsavers's picture

wow, leave some on the table dude, asking prices already coming down after 30days, max

divingengineer's picture

All new houses I see in Fremont are over $1,000,000
New condos going for $900,000 plus out in Pleasanton.
Stupid prices.
We would like to buy a home, but will sit back and watch for a buying opportunity.
Not sure if they will allow another price dip.
We came here for jobs, now feel trapped. We make good money and it is nowhere near enough to live like the people we see all around us.
Where are these fuckers getting all their money from?

coast1's picture

you speak my heart brother...worked my life away, and I wonder the same question...Where do all these people get all that money from?  My guess is some in China laundring their money...some from california, people moving out, the 1990's did provide much prosperity...I am not sure, your question is xln and hope more people chime in on their thoughts on the subject

Ms No's picture

It's not money, it's debt.  Plus many of them bought cheap which you will also have an opportunity to do down the road.  A paid for house in an area like that changes everything.  Then they write off their property taxes.  Having said that there is a great deal of wealth in California because they always congregate in areas that are considered high standard of living, good weather, etc.  Many did make their money there but many others made it elsewhere and came there with grips.  We have that in Scottsdale too. 


Mr. Universe's picture

A never ending influx of people into the Bay Area pushes everything higher. Asia, Indonesia, China, Central and South America, India, everywhere. The wealth of Silicon Valley draws world attention, San Jose is a soulless pit of a city and now over a million people. In San Francisco the city is bursting at the seams. The population has hovered in the mid 700,000 since the end of world war 2, however now it counts over 850K, not counting those not counted. The demographic makeup of the entire area has changed considerably. If I a bigger set of balls we would have left here long ago, now I just wait and hope it all holds together for 2 more years. Given the way they love to kick the can, I have no doubt they could, but will they?

The thing is when you buy/sell a long time residence it changes the taxes quite a bit due to Prop 13.  The taxes on my MIL house in B'game are less than $1,500 a year. Next door they pay close to $30,000, which on both sides, when the owners died, they were, purchased, torn down and 3,500 SqFt boxes put in their place. Pretty disgusting, but if you follow the money, it's a big payday for the City. 

Dealyer Turdin's picture

Yah, there are property tax stories like 8k a month getting told to my peeps in Marin...

We're blue collar and see a lot of big digs.

saveUSsavers's picture

young couples around here paying $800K+ ur looking at $13K in prop taxes or so NUTS! ($1K/month+ payment+food+etc, gotta make $100K or $80K min I would think to not lose ground

Jack's Raging Bile Duct's picture

I considered moving their recently, as I finished my last contract (out of CA) and was offered one here that was attractive--even for the bay area. I considered living out in Vacaville to soften the blow of the area...but I'm probably going to pass. Beyond being a zoo, it's incredible how little a six figure income will get you there. Furthermore, to earn what's considered "livable" there, you're pushed into the highest tax rates to be had. I have until Monday to accept the offer, but I'm 99% sure that I'm going to pass. I have opportunities elsewhere.

Mr. Universe's picture

Vacaville is way out there and I'm due South of there across the bay. Where would you be commuting to and how? If you live any farther than 20-30 miles from work around here you are just asking for a life of grief. Unless you have a compelling reason to come here, I would avoid the area all together.

Gen. Ripper's picture

Hadjis and chinks pay with cash. Easy to accumulate large wealth when you don't spend on toilet paper or toothpaste.