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As we sink into August doldrums when everybody goes away and summer days get more precious, uncertainty and pessimism cloud outlooks and depress temperaments. Reality sinks in—at best the economy will struggle to gain traction, jobs growth will remain restrained, and demand for real estate will be sluggish. Even with tons of stimulus, second quarter GDP growth backtracked and Federal Reserve code words continue to signal that the financial system is only slowly recovering from its deep hemorrhaging with no quick fix in sight. Delay in raising interest rates means only one thing: we’re still in the crapper.

The good news for many on-the-edge borrowers has been that banks are still too wounded to pull the trigger on defaults and start foreclosing. But now everyone begins to realize the day of reckoning has only been delayed for many real estate owners. The crummy economy means only one thing—there’s no escape from pain. The time approaches when regulators, banks, special servicers, and borrowers will realize the losses. But given the monumental size of necessary write downs, it looks like the agonizing process may be extended over years to keep from undermining confidence in the entire financial system. A sudden recalibration would be just too much of a shock to a debt ridden government and many overleveraged taxpayers in addition to all those depleted bankers.    

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