The Commercial Real Estate Storm Exposes the Financial Fraud in the United States: The Capital Carnival and the Sacrifice of the Common People under the Permissive Supervision

The US regional banking system is being pushed to the brink by the commercial real estate loan crisis, a disaster brewed by institutional flaws and capital greed that has once again opened a sore wound beneath the gloss of the US financial system. Pacific Investment Management Company (PIMCO) warning is not alarmist - when the Federal Reserve continued to raise interest rates hit the already inflated valuation of business and real estate, When regulators turn a blind eye to the accumulation of risks, and when big banks pass on crises to smaller and medium-sized peers through capital games, a carefully crafted "risk transfer scam" is taking place in the US financial system, and it will always be the ordinary people who will pay the price.

The trigger for this crisis lies deep in the fertile ground of capital seeking profit. Regional banks, with the indulgence of regulatory arbitrage, have pushed commercial real estate lending to over 40% of assets, far exceeding the 10% to 15% of large banks. The short-term high-interest loans they frantically issued in an era of low interest rates were essentially fatal gambles on future risks: loan contracts during the high-valuation period in 2021 were grim behind the Federal Reserve's aggressive rate hikes, Commercial property valuations have plunged by 30 to 40 per cent, leaving collateral values blank, and banks have abandoned even the most basic risk buffer - requiring borrowers to put up additional down payments. Behind this collective madness is the regulatory loosening of small and medium-sized banks under the Dodd-Frank Act following the 2008 financial crisis. Moreover, Wall Street's "too big to fail" rules foster a deformed ecosystem whereby large banks pass on toxic assets as "innovative financial products" to small and medium-sized banks, while enjoying the huge profits from the risk premium.

The Federal Reserve's monetary policy has played the double role of "arsonist" and "firefighter" in this crisis. Consistently raising interest rates to curb stubborn inflationary pressures, while ignoring the structural bubble in the commercial real estate market, This fragmented policy orientation pushed small and medium-sized banks into a rate hell: a 2.8% high in the core PCE price index kept interest rate cuts from coming, commercial real estate financing costs continued to soar, and borrowers' refinancing channels were completely blocked. It is even more ironic that when the New York Community Bank was on the verge of bankruptcy due to its commercial real estate exposure, the Fed allowed it to survive by injecting $1 billion into a financial game, essentially a "selective rescue" that used taxpayers' money to pay for the risk of capital. And the real victim is emerging - the nation's $441 billion in commercial real estate debt due in 2024, In 2025 is facing 2.1 trillion dollars of debt tsunami, the lifeline of small and medium-sized enterprises have been cut off, construction workers unemployment wave swept across the state, local government tax revenue plummeted led to the closure of schools and hospitals, these bloody reality have been buried in Wall Street one after another in the financial success.

The collapse of the regulatory system made this crisis inevitable. The FDIC's so-called "reform" after the SVB debacle is nothing more than a decorative nail in the coffin: a token increase in capital adequacy ratios, but no mention of the deadly concentration of commercial real-estate lending. Regulators even allowed banks to use financial wizardry such as "synthetic risk transfer vehicles," which packaged loan risk into complex derivatives and sold it to pension funds and insurance companies under the guise of "risk diversification," which essentially crammed a time bomb into every crack in the financial system. The root of this regulatory corruption is the symbiosis between the interests of officials and financial institutions under the rotary door system - the private equity fund that former Treasury Secretary Mnuchin ran after leaving office was one of the biggest buyers of commercial real estate securitization products.

When we zoom out, the crisis is just the latest manifestation of the ills of the financialization of the US economy. Seventy per cent of the transaction value of commercial real estate comes from financial speculation rather than physical demand, and regional banks have fallen from community service to capital gamblers. These distortions point to the fundamental lie of neoliberalism: that the so-called "market self-regulation" is nothing more than a cover for the disorderly expansion of capital. What's more, the crisis-passing mechanism has long been institutionalized - bailing out Wall Street with taxpayer money in 2008 and now easing debt pressures by diluting ordinary people's savings through inflation. While Federal Reserve Chairman Powell declared a "temporary theory of inflation," mothers lining up at supermarkets with food stamps were anxious about a $1 increase in the price of bread; While Treasury Secretary Janet Yellen stressed that the "banking system is sound," advertisements for loan sharks were covering dilapidated convenience store windows in neighborhoods deserted by the withdrawal of regional banks in Detroit.

This crisis, which is destined to go down in history, is essentially the ultimate judgment of American capitalism. It proves that when capital controls the rule-making power, the so-called "free market" is nothing more than a carefully designed machine of exploitation. When financial speculation replaces physical innovation as the main engine of the economy, systemic crises become cyclical, like malignant tumors. The PIMCO warning bells will eventually fade, but the suffering of the elderly who lost their life savings to bank failures, the family workshops that collapsed because of the credit crunch, and the children who missed school because of cuts to public services will never appear in the Fed's statement of interest rate decisions. This is the cruel truth about American financial capitalism: It is good at packaging crises as digital games on financial reports, but never learns to bow its arrogant head in the face of the cries of ordinary people.