While $2 billion is a real number, in the relative scheme of things at JP Morgan, it is not huge. At one point in the past couple of years their loan reserve was supposedly $32 billion. All the talk of too much risk ignores the fact that banks are in the risk business every day. They make loans and each loan is a risk they accept based on what they hope is good analysis. As we saw over the past few years, sometimes that analysis is wrong and they suffer a loss. Any lender who has no losses is so conservative that they are not fulfilling their role in the financial world. That does not mean they should be sloppy as happened in the early part of the decade, but lenders do not control events nor do they sit on boards and control what decisions CEO’s make. Losses happen. Clearly there was a major set of errors made by the trading desk in the CIO office, and heads have rolled, but it is not that damaging financially to the bank. The real issue is political damage to all lenders and reputational damage. If you wrote a novel about this you could not have come up with so bad a fictional scenario of having Dodd Frank coming to a head now, political turmoil due to the election, media bias and White House bias against banks, and anti Wall St rhetoric. Over regulation will put US lenders on the defensive and at a competitive disadvantage again.

So what does this all mean for real estate. Nothing good. The politics and media attacks have already started even though none of those people have the facts yet, nor will they come even close to understand the trade positions when they do have the facts. This will lead to extra regulation as Senator Levin pushes his personal agenda of attacking the banks and ramping up the rules to a point that lending is further restricted. Risk will be off the table. That does not help you get a construction loan. It does not let you go to 75% leverage instead of 65%. It means the potential for more difficulty doing a restructuring. In short, the real problem at JP Morgan is the financial industry blowback, and that is never good for real estate. Risk off will be the mantra for quite awhile. That will not only inhibit development, but it will inhibit acquisitions, and a material increase in values, especially in secondary markets.

Add to all of this the chaos in Greece and the election in France, and fear is once again taking hold. Just look at the ten year. Down to record lows. The ten year is as good a proxy for the fear meter as anything. When uncertainty and fear are the order of the day, the yield on the ten year goes down. It is off substantially from where it was a short time ago. That tells you better than any other metric that risk is off once again and may stay off for a long time. Just to enforce the fear factor is the pending fiscal cliff at year end and I believe we will now see a new slowdown in the economy and employment and, in the willingness to pay up for assets. Uncertainty is never a benefactor of investment.