This article is a subordinate article to the subprime mortgage crisis. It covers some of the miscellaneous effects of the crisis in more detail, to preserve the flow of the main page.
Decline in commercial real estate market
A combination of factors resulting from the subprime mortgage crisis have led to problems in the commercial real estate market. According to the National Association of Realtors (NAR) there is a slowing in commercial real estate due to the tightening credit and slowing growth, the former a direct result of the subprime mortgage crisis. The NAR's chief economist, Lawrence Yun, said "Although capital remains available for residential loans, the credit crunch is pronounced in commercial lending," adding "Combined with a slowing economy, the lack of credit is curtailing activity in the commercial real estate sectors. As a result, there's been a slowdown in the net absorption of space, which is leading to higher vacancies and more modest rent growth." Patricia Nooney chair of the Realtors Commercial Alliance Committee portrayed the decline as unusual since "transactions are being curtailed not for lack of demand, but for serious challenges in obtaining financing."
Financial companies going bankrupt or being acquired has also been projected to affect commercial real estate with analysts at JP Morgan estimating office vacancies could go up 5 to 7% and rents decrease by 20%. The bankruptcy of Lehman Brothers has also been projected to cause a depreciation in the price of commercial real estate fears of the firm liquidating its holdings in commercial real estate have led to other holdings being sold in anticipation. It is also expected the unloading of Lehman's debt and equity pieces of the $22 billion purchase of Archstone could cause a similar action with apartment buildings.
Rise in home-related crime
There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay. The FBI reports that arson grew 4% in suburbs and 2.2% in cities from 2005 to 2006. , the 2007 numbers were not yet available.
Effect on municipal bonds and bond insurers
A secondary cause and effect of the crisis relates to the role of municipal bond "monoline" insurance corporations such as Ambac and MBIA. By insuring municipal bond issues, those bonds achieve higher debt ratings. However, some of these companies also insured CDOs backed by low-rated tranches of subprime mortgage-backed securities, and as default rates on those MBS have risen, the insurers have suffered significant losses. As a result, rating agencies have downgraded several bond insurers—as well as the bonds they insure—some to low speculative grade rating categories.
The downgrades further threaten the bond insurers because they become unable to underwrite new business going forward. The downgrades may also require financial institutions holding the bonds to lower their value or to sell them, as some entities (such as pension funds) are only allowed to hold the highest-grade bonds. The effect of such a devaluation on institutional investors and corporations holding the bonds (including major banks) has been estimated as high as $200 billion. Regulators are taking action to encourage banks to lend the required capital to certain monoline insurers, to avoid such an impact. However, rather than recapitalizing insurance units plagued by exposure to subprime related products, some insurers are focused on moving excess capital to previously dormant units that could continue to underwrite new business.
Effect on jobs in the financial sector
According to Bloomberg, from July 2007 to March 2008 financial institutions laid off more than 34,000 employees. In April, job cut announcements continued with Citigroup announcing an extra 9,000 layoffs for the remainder of 2008, back in January 2008 Citigroup had already slashed 4,200 positions.
Also in April, Merrill Lynch said that it planned to terminate 2,900 jobs by the end of the year. At Bear Stearns there is fear that half of the 14,000 jobs could be eliminated once JPMorgan Chase completes its acquisition. Also that month, Wachovia cut 500 investment banker positions, Washington Mutual cut its payroll by 3,000 workers and the Financial Times reported that RBS may cut up to 7,000 job positions worldwide. According to the Department of Labor, from August 2007 until August 2008 financial institutions have slashed over 65,400 jobs in the United States.
