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It's been 13 long months since the credit crisis was unleashed by a spate of subprime defaults and still no end in site. Of course, the lending fiasco has spread well beyond subprime to other types of residential and commercial loans as well as various corporate transactions. Financial institutions have...

By Jonathan D. Miller | Updated on September 01, 2008

It’s been 13 long months since the credit crisis was unleashed by a spate of subprime defaults and still no end in site. Of course, the lending fiasco has spread well beyond subprime to other types of residential and commercial loans as well as various corporate transactions. Financial institutions have very little money to lend while it appears cleaning up their balance sheets may take considerably more time. It’s a delicate balancing act. If they could find all the dreck and recognize all the losses at one time, many banks could crater. If regulators push banks too hard they may create greater fears and more problems. The Fed has had a tough enough time keeping Freddie and Fannie above water while hoping a big money center institution doesn’t go sideways on them like Bear Stearns. And Ben Bernanke may be running out of fingers to plug all the holes in the dikes.

So that’s why we haven’t seen much movement off near record low commercial default and foreclosure rates. Everybody is buying time extending forbearance rather than forcing refinancings at more difficult terms or dropping the hammer and raising too many balance sheet red flags. If the economy manages to rebound and property cash flows don’t deteriorate then many borrowers may have a chance to skate through. But if tenant and consumer demand continues to fall off then bankers and special servicers may have no choice but to get tough.

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