Tuesday, January 4, 2011


The empty and interminably unsold lots next to our house have been empty long enough that pine trees are starting to grow to a considerable size. Soon we won't be able to see many neighboring houses. Evergreening the neighborhood is what I like to call it... no wait a minute.  Evergreening....

In the drug industry if a drug is about to go generic, the company making the drug will make a small change to it. Like.... add vitamin D to a bone strengthening drug. That way, when the generic drug drops in price the drug company will have a new nongeneric drug ready to go and they can charge the insurance companies and unwitting consumers a higher nongeneric price for the same thing plus the inconsequential addition. All this for just the cost of a few well dressed reps armed with free lunches for the doctor and staff.  They call this "evergreening." linky   I wonder if it's called the same thing in the college textbook field when they add inconsequential stuff to keep the textbooks "fresh" and keep the reselling of old ones at bay on Ebay...

Actually, I just read the term used in yet another context and that is what I was going to write about. Evergreening, in finance, is when a loan is continually renewed rather than repaid. Apparently, according to Financial Times: linky or linky evergreening is the way banks have been handling Commercial Real Estate problems. As Financial Times puts it: Commercial Real Estate "has not generally grabbed attention" because this was not as "dramatic" as subprime and sovereign debt problems (sovereign debt was problematic in the EU this last year.).

Again, apparently, if I am understanding this, the banks decided that Commercial Real Estate loans could be extended when their borrowers encountered problems but the "drama" of the sub-prime loans needed a whole bunch of what has been described as "robosigners" to foreclose on homeowners fast enough. And Financial Times thinks that rising interest rates will cause this whole structure a bit of trouble; more problematic subprime loans added to the amounts the banks have extended to businesses who just couldn't make their payments. The rising interest rates mean more foreclosures on homeowners and more defaults on the evergreened loans which tend to need the evergreen treatment just about now coincidentally as interest rates rise. George W. Bush can rest a little easier as historians focus more and more attention on Greenspan and his easy credit of days gone by so those terrorists would not win.

Thankfully the trees growing around my house are generically cheap and not very dramatic just yet although they may be quite tall next year. The way that banks are handling our future, those trees may be enjoyable for a long time. Hopefully, my evergreened drugs will keep me alive long enough to enjoy them at tremendous heights.