An increasingly popular tactic that’s being used by banks to avoid writing off bad loans – and, in turn, taking huge hits on their capital – could be setting the stage for even more dramatic economic woes. The tactic is popularly referred to as “extending and pretending,” and it takes many different forms. Stretching out maturities and extending below-market interest rates are two of the most popular techniques. These strategies allow banks to prevent the default of billions of dollars of loans that were made during the real estate boom; however, they may be drawing out a process that could ultimately trigger their demise. Continue reading “Banks’ Solution to Bad Property Deals? Extending and Pretending” »