Letitia's Land Snatch Could Trigger Economic Avalanche

New York State's illegal persecution of Donald Trump could bring the entire economy to its knees in a matter of weeks

Next week, New York State will seize Trump Tower, 40 Wall Street, and two Trump golf resorts in Westchester County, NY. I’m sure you know this is how the state plans to extract the ludicrous Engoron judgment from Trump.

I think a lot of people are missing the bigger “unintended consequence” of New York’s wicked, illegal, and disastrous crusade: economic recession or depression driven by the biggest banking crisis since the Great Depression.

Many writers and pundits have discussed two of New York’s greatest crimes: the end of the idea of “rule of law” and the end of New York State as a place to do business. Those outcomes are already assured, regardless of Trump’s victory on appeal.

What’s talked about less is the immediate effects of seizing and selling (or auctioning off) Trump’s New York properties. To understand why this maneuver could crash the whole banking system, we, first, must look at the state of banking vis-a-vis commercial real estate (CRE). We’ll start with CRE, since that’s going to be the catalyst that starts the dominoes a-tumbling.

The commercial real estate market has been in distress since the end of Covid helicopter money for three major reasons:

1. Remote work policies have reduced the amount of office space required.

2. Crime and filth have proliferated exponentially in the urban centers where most office space exists, driving workers home or companies to safer, cleaner suburbs or red states.

3. The fastest increase in interest rates in US history which means the cost of refinancing commercial real estate mortgages has increased dramatically while the market value of the collateral is collapsing 25 percent in the largest cities.

There’s one more important piece of background information to note: the big banks are minor players in the CRE world because smaller regional banks have a better understanding of local market conditions. Thus, most of the CRE debt is held by smaller regional or local banks, and CRE is a major piece of regional banking business model. From The Wire of 11 May 2023:

Regional banks may lack brand recognition, but they play a vital role in providing credit to small businesses and the commercial real estate (CRE) sector in the US. They are the main source of financing for office buildings, shopping malls, apartment buildings, and related businesses, which are already struggling due to rising interest rates and the COVID-19 pandemic.

Remember the regional bank crisis of 2023? It’s not over, as office buildings continue to lose value in most major cities and interest rate-cuts were, once again, delayed in this week’s Fed Open Markets Committee meeting. (For the record, an additional rate hike in 2024 is more likely than three cuts.)

Further, the CRE-driven banking crisis is about to reach another boiling point according to Goldman Sachs. Zerohedge reports that the reason there were so few spectacular CRE failures in 2023 was because debtors kicked the refinancing can down the road in expectations of lower rates in 2024.

[Vinay Viswanathan of Goldman Sachs] said this high amount of debt that has been extended and modified rather than refinanced "helped mitigate a default wave and a sharp pick-up in losses on CRE loan portfolios." He noted the main driver of this has been the "willingness of lenders and borrowers to modify and extend maturing loans rather than refinancing or forcing a foreclosure." In other words, the can was simply kicked down the road until after the presidential elections. 

Zerohedge provides an excellent graph (via Goldman Sachs) showing how the refinance snow drift is poised to produce a catastrophic avalanche in 2024:

See that light blue column above 2024? That’s how much commercial mortgage debt is due in 2024 as of today. The dark blue column to the left shows how much was due as of 2022. The difference (green dotted line) is how much was kicked down the road in hopes the Fed was speaking the truth about interest rate cuts this year.

To summarize before moving on to Letitia James, regional banks are in crisis because of their exposure to CRE mortgages caused by a combination of bad policies, including work-from-home, rampant crime, and high interest rates (relative to the last 14 years). One loud bang around the CRE world could trigger an avalanche of defaults, foreclosures, and lost value for banks, real estate developers, cities and counties that rely on taxes and commerce from commercial property, and more. In short, the knock-on effects of a CRE mortgage collapse will reach every sector of the economy.

The Letitia James Protection Racket

Now, we get to the crooked and stupid attorney general of New York and her land-snatching scheme. Below we see how James hatched the plan:

On 26 March, the State of New York intends to seize four Trump properties: Trump Tower, 40 Wall Street, and two golf properties in Westchester County. The state will move quickly to sell the properties, securing cash before the appeal process begins—before a judge can order the properties held in abeyance until appeals are exhausted. Via ZeroHedge:

The state of New York has positioned itself to seize Donald Trump's assets in Westchester County following a $454 million civil fraud judgement against the former president. The state registered the massive judgement in the county, a sign that his properties in the area may be at risk of being seized if Trump can't post an appeal bond.

(For the record, James does not have to register the judgment to seize Trump’s Manhattan properties because they are in the same county where the judgment was rendered.)

This means the four properties with a current combined value in the billions will be sold at fire-sale prices. Look for James to demand only enough money to cover the +/- $500 million judgment (with interest.) Even if Trump wins on appeal, those properties he built through his own genius and hard work will be gone forever, as any seller would demand market rates.

That’s how Letitia James plans to erase the Trump name from New York, gain a cash windfall for Caribbean vacations with Fani Willis, and start an extortion racket aimed at all other New York business and property owners. (“Give me what I want, or I’ll take it.”)

Yes, Letitia and the Democrats have run a nationwide extortion racket for decades, but now they run it in the open. They know most business people will pay up rather than risk losing all or, worse, being called “racists” for challenging the strong-arm tactics.

But what happens when billions worth of commercial real estate sell for pennies on the dollar, including two magnificent building with excellent occupancy rates?

Well, anyone who tried to sell a home in 2022 or 2023 can tell you: prices fall every day. Beginning in New York, then, the seizure of Trump’s properties will accelerate the downward pressure on CRE prices. Combined with the desire of some businesses to escape the James extortion racket, vacancies in New York will increase, further dropping prices and real estate values.

What happens when that massive snow pile of debt comes due in 2024? Well, banks won’t refinance mortgages for much above the current market value of the collateral. Investors will need to pony up some cash or default. With no end in sight to the decline in CRE market value, expect most of them to default and walk away.

Now, consider the effect on tenants of those buildings. I’ve worked in an office building where the owner of the building went bankrupt. The receiver typically cuts costs to the bone. Building services decline. Broken elevators don’t get fixed. Security and custodial positions are slashed, leaving the building dirty and dangerous. Burned out lights are not replaced. The coffee shops and cafes on the main floor close shop, as their owners seek stability. (If you want to experience this macabre, undead state of CRE, visit Chesterfield Mall.) In short, tenants take the first flight out, often breaking their leases to find more secure accommodations. (No one wants their clients passing through the lobby of an undead building.)

Imagine a 25 percent drop in commercial real estate values in New York—twenty-five percent below today’s depressed values. With mortgages due for refinancing. Tenants and owners walking way, leaving regional banks—already stressed—with zero cash flow and responsibility for vacant building that still requires maintenance and property taxes.

You guessed: the banks go under. Assets accrue to the five largest banks. Liabilities are written off by bankruptcy courts.

While New York could turn into a failed state in a matter of months, the rest of the country will suffer. Unemployment, already a problem for American citizens, will jump. Interest rates will actually rise as debt becomes riskier across the board. Innovation and expansion will screech to a halt as businesses make finding a safe location their only priority. That means contracts cancelled, projects delayed, hiring frozen, layoffs begun.

All because a DEI AG wanted to “get Trump.”

Get ready for a year unlike any other.