The world and the country are a mess. We have so many black swans swarming. Syria, Yemen, Egypt now supporting Hamas, Christians being murdered in Egypt and Pakistan, Libya drifting with no leadership from the US, NATO a useless shell, no chance for a peace deal with Israel and the Palestinians, and Iran continuing to be build the bomb. Greece is clearly insolvent yet the EU is intent on more fairly tales and wasteful subsidies to make believe the European banks don’t really have huge unstated losses on their book. That has to all end badly. China is building up its military and trying to buy off many developing countries with commodity or development deals.

At home we have no leadership and just a lot more political rhetoric from all sides. Ron and Rand Paul and their acolytes continue to fail to understand even the basics of economics or banking and are continuing to try to stop needed legislation. Obama gave us a head fake when he agreed to extend the tax rates in December, but he continues his generally leftist approach to government intrusion in virtually all facets of life. The NLRB Boeing case is a job killer and outrageous payoff to the unions who bought Obama with huge campaign contributions and election workers. Excessive regulation and Elizabeth Warren pushing all sorts of regulation and legal attacks on the banking system creating a cost of doing business which is hampering profits and the potential expansion of lending. As Jamie Dimon made clear, the regulations get promulgated but nobody has any idea if they are a net negative or positive. Derivatives regulation is still not set and nobody knows where or when that will be finalized. Jobs are not being created and house prices continue to decline. All of this has caused most everyone to become very cautious and confused as to where the economy and the world is headed. That caution is self sustaining if everyone is afraid then companies do not invest, hiring is delayed and consumers do not spend. None of this suggests a material decline in unemployment, nor an increase in house prices. Quite the opposite.

Yet for all of this, lending is back in a way that is nothing short of scary already. Too many banks and others are jumping into CMBS just as happened in 1993-94. The new guys are trying to wedge into market share and when you are just another commodity capital allocator, all you really have to compete with is price or a night out at the strip clubs. The result is what always happens. Spreads are already way in. Underwriting is already getting loose. Covenant lite is back. Multiple tranching is back. Even some IO is back. Now even CDO’s, which should be banished forever, are back. I would not be shocked to see some version of SIV’s return at the speed at which all the lessons have been forgotten. Mezz loans are back, and I have had discussions with lenders who will consider 80% or even 85% leverage. Recourse is gone and I even heard a conversation about limited recourse on a construction loan last week. CMBS is simply a loan to distribute business model, and even with 5% retention is not impacting what is becoming loose lending again. None of the events described above seem to matter. I heard one senior officer of a major lender saying again what I used to hear in 2006-unless I make a lot of new loans they will fire me. That is exactly how Lehman happened, and history is sure to be repeated.