For the already struggling economy, a new potential crisis looms: the commercial real estate industry, which owns office buildings, hospitals and hotels.
Hundreds of billions of dollars' worth of loans are coming due on those buildings, and the industry says with the credit markets frozen, the government needs to intervene.
Officials with the Federal Reserve have been meeting with industry executives to consider the problem. Whether you are a schoolteacher looking to buy a $20,000 car or a real estate company looking to refinance a $20 million office building, the credit crisis has made it much harder to get a loan right now.
"It's a train wreck for the commercial real estate market," says Richard Cowden, managing editor of the Real Estate Law and Industry Report.
Cowden says these big real estate loans are different from home loans because they have to be fully paid off or refinanced much more quickly.
"Their loans come due typically every seven to 10 years," he says.
With several trillion dollars in outstanding loans on all those office parks and shopping malls and hospitals, a lot of debt has to get refinanced every year.
'Totally Shut Down'
"We estimate that around $400 billion of commercial mortgages will mature in the next 12 months," says Michael Grupe, a vice president with the National Association of Real Estate Investment Trusts.
Grupe says that in 2007, about $200 billion of commercial loans got refinanced through securitization — when mortgages get bundled up and sold off to investors as securities. This serves as a giant pipeline for funneling cash into the system. In the first six months of the year, however, that flow of money slowed to a trickle.
"In the second six months, it's zero," Grupe says. "It's zero. ... It's not like there's been a mild slowdown here. The pipe is frozen solid. No money coming out.
"It is totally shut down," he says. "Totally shut down."
It isn't just commercial buildings that might be on shaky footing financially. Grupe says even very good, profitable office buildings or hospitals or apartment buildings that should be able to get refinanced cannot.
So what would happen if hundreds of billions of dollars' worth of commercial real estate can't get refinanced when it comes due?
"We don't want to find out what would happen," Grupe says.
Possible Government Bailout
Grupe and others in the real estate industry have been meeting with officials at the Federal Reserve and asking the government for help.
The government has already announced a $200 billion plan to try to restart the market for credit cards, car loans and other consumer debt. Basically, the government is providing guarantees to get investors to buy up these securities again.
So Grupe says the commercial real estate industry wants that program expanded to include commercial loans.
"In our conversations with the Federal Reserve, I think it's fair to say that the senior staff indicated that they are open to a program like this," he says. "They recognize the problem."
Some economists think the government should take action here.
"This is the next big problem for the financial system and the broader economy," says Mark Zandi, who heads up Moody's Economy.com.
Zandi says the problem is that if all these big real estate loans can't get refinanced, that would mean more losses for the already staggering banks.
"The banks and financial system broadly don't have enough capital as it is," he says. "And if they have to take big losses on commercial real estate, it undermines their capital position even more and they can't extend credit to anybody."
Zandi says this is one of the next areas where we are likely to see the government try to intervene to stop the financial crisis from getting worse. He expects this to be the worst recession in 50 years, and so he and other economists think the government should be doing all it can.