No Shortage of Bubbles and Troubles

The Office of the Comptroller has said that banks with more than 100% of their capital in construction loans or more than 300% of that capital in commercial real estate generally need more thorough scrutiny from regulators.

On the local level, commercial real estate lending has taken up the slack left by a slowing residential mortgage market. In Florida's Manatee, Sarasota and Charlotte counties, 21 local community banks increased their real estate lending by 40% in the 12 months that ended in June 2006 from the prior 12-month period, according to the Federal Deposit Insurance Corp. -- even though residential real estate sales are down about 40% in the area in 2006. The biggest increase -- some 74% -- came in commercial construction and development loans.

Too Much Money

That's not exactly what the Fed was hoping for when it raised interest rates 17 times. Raising interest rates is supposed to make borrowers more reluctant to borrow and make it more expensive for lenders to raise the capital that they use to make loans.

The amount of money available for lending is supposed to shrink, but that doesn't seem to have happened so far in the market for commercial real estate loans. If anything, too much money is chasing too few good loan opportunities, according to regulators.

They fear that exactly the same situation is developing in the commercial real estate market as developed in the market for residential mortgages, when banks with more than enough money to lend chased after borrowers by lowering their credit quality standards.

Is this the only place in the economy where too much loan money may be chasing too few good borrowers? Not by a long shot. One place to look is the runaway market for mergers and acquisitions and private buyouts of public companies.

The volume of leveraged buyouts, for example, tripled in the 12 months that ended in August from the same period a year earlier. Every private buyout that is announced is larger than the one that closed just the week before.

Still Some Gas Left

And I'm pretty sure that mortgage lenders have yet a few more tricks up their sleeves to rope in a few more borrowers. American Express(AXP Quote) recently announced that buyers of condominiums at some projects in Manhattan will be able to charge their down payment on their green, gold or platinum cards. Borrowers will get reward points good for airline miles, of course.