Commercial real estate prices tank as banks struggles to stay afloat. Joe Biden cuts American drilling as Saudi Arabia cuts the oil supply.

And David Weiss seeks a grand jury indictment against Hunter Biden at last for a gun crime.

I'm Ben Shapiro. This is The Ben Spiro Show.

This show is sponsored by ExpressVPN. It's time to stand up against Big Tech. Protect our data at ExpressVPN.com slash Ben. So we keep hearing over and over that the economy is on soft footing. You know, that it'll all be fine. We're going to have a soft landing here. The economy continues to be very strong because Bidomics and all the rest of this. There's only one problem. Every couple of days, there's a story that comes out that reminds us how fragile the economy actually is, and then it wouldn't take a lot to tip the economy over the edge. Here's the thing about economic crashes or economic spirals. Everybody knows they're coming. It's just a question of when. If you are a trader in the stock market, one of the hard things about being a trader in the stock market, for example, is knowing when to short a stock. When I say when to short a stock, I don't mean that you know that the stock is going to go down. Probably you know the stock's going to go down. The problem is what's the timeline? Do you short it for a week, for a month, for a year? How long do you short the stock? Well, if you're looking at the stock of the American economy as a whole, it seems like you want to short it,

but you don't sure exactly when, because the fact is that the American economy is not, in fact,

on softer or even solid footing. It is, in fact, resting on a precipice. And we just don't know

what sort of wind is going to blow that knocks it over the edge. Today's story comes courtesy

of the Wall Street Journal. Bank OZK had two branches in rural Arkansas when Chief Executive George Gleason bought it in 1979. The Little Rock Lender today has billions of dollars in commercial real estate loans, including for properties in Miami and Manhattan, where it's helping fund the construction of a 1,000-foot-tall office and luxury residential tower on Fifth Avenue. Regional banks across the country followed a similar playbook, gorgeing on commercial real estate loans and related investments in big cities over the past decade. With the commercial real estate market now in meltdown, those trillions of dollars in loans and investments are a looming threat for the banking industry and potentially the broader economy. Banks exposure is even bigger than commonly reported. The banks are in danger of setting off a doom loop scenario. That's always good stuff, right? That's what you look for in your morning paper is the doom loop scenario. They're in danger of setting off a doom loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses. And the problem, of course, is that you may end up with a foreclosure spiral, kind of like you saw in 2007, 2008.

That was in the residential real estate market because basically people could not pay back their subprime loans.

But what happens when you're talking about large commercial entities that simply stop paying their loans when they're building a building, when they're doing a development?

Suddenly things come on the market, but nobody wants to buy them because we think they're going to get cheaper, for example. Bank OZK has not pulled back from lending, but it has started to see some signs of market trouble in January. A developer defaulted on a roughly $60 million loan from bank OZK after construction costs escalated, the bank said there's another problem. Inflation has driven up the cost of construction wildly. So everybody's budget from January no longer applies. If you got some sort of spec budget from even somebody who's working on your home back in January, this has actually happened to us. And then you say, well, we want you to do the construction, but it's now September. Will you give us that same price? They'll tell you no.'ll tell you the price is significantly higher because of the prices of the materials and the prices of the labor. The loan was considered relatively safe because it was far below the building site's value of $139 million in 2021. But in December, a new appraisal put the property's value at $100 million. The bank is now effectively stuck with the property. Today's troubled market fueled by rising interest rates and high vacancies follows years of boom times. Banks roughly

doubled their lending to landlords from 2015 to 2022 to $2.2 trillion. Also, banks increase their

exposure to commercial real estate in ways that aren't usually counted in their tallies. They lend

to financial companies. They make loans to some of the same landlords. They're basically using it

as a pass-through. They bought bonds backed by the same types of properties. So in the same way,

that bad real estate loans ended up being sliced and diced a thousand different ways through

credit instruments back in 2007, 2008. Basically, they took a bunch of bad subprime loans and they

stacked them up with good loans. And they called it A-level loans, and they sold that throughout the broader economy. And that's why, once the infection set in, it infected every part of the broader economy, the same thing has happened with commercial real estate because you have people who are basically slicing and dicing these loans or they're buying bonds that are backed by the loans. The indirect lending, along with foreclosed properties, trading portfolios and other assets linked to commercial properties brings banks total exposure to commercial real estate to $3.6 trillion equivalent to 20% of their deposits. By the way, you can see this in real time again. I know a lot of people who are in the real estate investment industry. And when it comes to commercial real estate, that is not an industry that you want to be in right now. But there are a lot of banks that are reliant on commercial companies, commercial real estate companies, paying back their loans. Meanwhile, also according to the Wall Street Journal, inflation and interest rate worries continue to drag stocks downward. Stock slumped on Wednesday after investors received a fresh sign the U.S. economy could be revving up fanning those inflation fears inflation is not going away because, again, it is not just the

product of last two years of spending. It is the product of 20 years, basically, of incredibly

loose spending by the Federal Reserve and by the Treasury Department of the United States.

Quantitative easing became the order of the day back in 2007, 2008. But easy money prevailed up until 2007, 2008. If you go back and look at the mortgage rates in the year 2000, the mortgage rates in the year 2000 were like 5, 6, 7 percent. But for most of the following two decades, the mortgage rates were in the 2, 3, 4 percent range, and that is because of easy money. Well, the problem with easy money is that it makes people make loose decisions. You see this in your own life. The general economy runs kind of like your household in this way. If you have a lot of money lying around, you don't think that much about, okay, fine, so I wasted a little money on a dinner or I wasted a little money on a particular event, but in a great event, but we had the money, so who cared?

The same thing is true when it comes to investors.

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