Audit Notes: Extend and Pretend, Low Paid U.S. Autoworkers, BP

The Wall Street Journal has a very good page-one story on commercial real estate (my old group there) and how banks’ “extend and pretend” policies could just be delaying the day of reckoning in that industry. It’s the paper-it-over economy:

A big push by banks in recent months to modify such loans—by stretching out maturities or allowing below-market interest rates—has slowed a spike in defaults. It also has helped preserve banks’ capital, by keeping some dicey loans classified as “performing” and thus minimizing the amount of cash banks must set aside in reserves for future losses…

But the practice is creating uncertainties about the health of both the commercial-property market and some banks. The concern is that rampant modification of souring loans masks the true scope of the commercial property market weakness, as well as the damage ultimately in store for bank balance sheets.

And this is a bad sign:

About two-thirds of bank commercial real-estate loans maturing between now and 2014 are underwater, meaning the property is worth less than the loan on it, Foresight data show.

The Journal does an excellent job explaining what’s going on here, and how restructuring loans can be a good thing, but how the extent of such activity shows that on balance it’s probably not. The bill’s got to come due some day.

— Man, are our autoworkers overpaid. How many times have you heard that trope? But check out this chart from Bloomberg BusinessWeek, which shows how much less American autoworkers get than their German, Japanese, French, and Swedish counterparts.

German labor costs are $58.50 an hour. France’s are $47.81, Sweden’s are $41.73, and Japan’s are $38.63.

The U.S.? $33 an hour.

— ProPublica’s Marian Wang is good to note how pathetic the fines BP’s gotten in the past have been given its heft.

In the first three months of 2010, for instance, BP reported a profit of more than $6 billion—that’s $2.8 million an hour. A quick calculation shows that OSHA’s $87 million fine for safety violations at BP’s Texas City refinery would take the company a little more than a day—31 hours, to be exact—to pay off.

Still, BP hasn’t paid that fine yet, even though it was announced last fall with some fanfare, given that it was the largest fine ever handed out by the agency.

Nicely done.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.