Crime and Covid Set up the Next Bank Crisis

Yet another "Perfect Storm"

This week saw big announcements from major retail chains that could mean serious trouble for $11 trillion of commercial real estate, and the banks that need it.

First, Whole Food closed it’s flagship San Francisco store after just one year, citing “employee safety” — theft, violent crime, bathrooms full of needles.

Meanwhile, WalMart announced they’re closing half its stores in Chicago, also citing crime and theft. They said they were losing “tens of millions” on the stores and noted they have never made money in Chicago after 17 years of trying.

WalMart also closed its last remaining stores in Portland, laying off 600 workers after “record-breaking thefts.” The nearby Nike store was also shuttered after mass shoplifting including 15 overnight break-ins in 2 months — that’s about one every 4 days. You’d have to hire a guy just to tally up what was stolen out of the store-room every night.

The Warnings in Plain Sight

This shouldn’t have been a surprise: In December WalMart and Home Depot CEO’s both warned retail theft was hiking prices and closing stores; Home Depot said retail theft is “spreading faster than Covid.”

The epicenter is big cities, whose administration fell apart during Covid. Lockdowns immediately started driving people out of the cities, because remote workers no longer wanted to live in expensive and increasingly crime-ridden hellholes.

At one point it cost 10 times more for a moving truck from California to Texas than the other way around. Because nobody wanted to move in to California but lots of people wanted to move out.

But the stores held on, hoping things might go back to the way they were.

Now they’re giving up hope.

SFO: the new Detroit, now going Nationwide

San Francisco is particularly bad.

The crime was front and center last week when the founder of Cash App, Bob Lee, was stabbed to death on a San Francisco street. He’d actually moved to Miami to escape San Francisco’s crime, but was back in town for a one-day meeting.

Now regular people have had enough and are getting out before house prices crash — they’re already down $200,000 in San Francisco.

The city itself is draining out at record speed, turning San Francisco into a ghost town: 29.5% of offices in San Francisco are empty — almost one in three. Pre-pandemic that was 3.6% — you had to sell your first born to get office space in Downtown San Fran.

There’s now over 27 million square feet of empty office space, with millions more coming up for renewal where the tenant may just walk away.

One major developer just walked away from an $84 million project they bought in 2019 — they just gave it back to the bank. Gap sold their $80 million building for a 40% haircut, and another $250 million project is getting bids about one-quarter pre-pandemic price — a 75% haircut.

In other major cities it’s not much better: Bloomberg says nationwide vacant space is at a record high, almost 20%. So one in five offices in America are empty. Nationwide, one study predicts 10,000 stores will close per year.

Impact on Banks

And so, just a month after the March bank runs, we’ve already got a new “perfect storm” on the horizon. Because if one in five retail and commercials isn’t getting rent, the owner is going to default on his bank loan.

That comes to about $11 trillion in commercial loans outstanding — about 20 to 50 times more than the capital buffers in the entire US banking system. If trillions in commercial loans have to take 40% or 75% haircuts, we could see yet another 2008-scale crash to go with the one we’ve already got from the Fed-induced bank panics.

The bigger concern is what breaks next. Our obscenely over-leveraged ponzi industrial complex is shot through with Rube Goldberg monstrosities where it’s only a matter of time until something breaks, and the guardians don’t even understand what they’re watching.

Since the beginning of the bank crisis just a month ago, gold’s up 150 dollars — over 7% in a month. While Bitcoin’s up almost 50%. If they keep it up — which they probably will given bureaucrats are handing taxpayers and dollar-holders on a silver platter — safe-havens like gold and Bitcoin go from far-sighted speculation to must-have portfolio insurance: a lifeboat.

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