With a $4.7 trillion bailout under their belts and no harm done to their billion-dollar bonuses, don't expect Wall Street bankers to be chastened by the 2008 financial crisis. Below we list eight things to watch out for in 2011 that threaten to rock the financial system and undermine any recovery.
1) The Demise of Bank of America WikiLeaks founder Julian Assange is promising to unleash a cache of secret documents from the troubled Bank of America (BofA). BofA is already under the gun, defending itself from multiple lawsuits demanding that the bank buy back billions worth of toxic mortgages it peddled to investors. The firm is also at the heart of the robo-signing scandal, having wrongfully kicked many American families to the curb. If Assange has emails showing that Countrywide or BofA knew they were recklessly abandoning underwriting standards and/or peddling toxic dreck to investors, the damage to the firm could be irreparable.
2) Robo-signers Wreaking Havoc With lawsuits abounding, new types of fraud in the foreclosure process are being uncovered daily, including accounting fraud, fake attorneys, destroyed promissory notes and false notarization. The crisis not only calls into question the legality of untold foreclosures, it also calls into question the value of trillions of dollars worth of mortgage-backed securities held by banks, pension funds, federal, state and local governments. The only government report on the topic by the feisty Congressional Oversight Panel for the TARP acknowledges that "it is possible that 'robo-signing' may have concealed deeper problems in the mortgage market that could potentially threaten financial stability."
3) MERS Madness
In addition to outright fraud, numerous state Supreme Courts have questioned the legal standing of the Mortgage Electronic Registration or "MERS" system. MERS is listed as the mortgagee for 60% of U.S. mortgages. It is an electronic clearinghouse created by industry to bypass the property registration system developed in precolonial days to ensure that the King could not easily rob the subjects of their land. Wall Street turned to MERS to speed securitizations (and now foreclosures), but its legal standing is now in doubt and its shoddy processing of documents has major ramifications for the securitization process as well. Look for a rotten "MERS fix" in the new Congress. Let's hope it gives consumer advocates some leverage to demand justice for Americans being robbed by the new Kings on Wall Street.
4) Flash Crash Calamity The "flash crash" of May 2010 rattled the markets and caused a stunning 700 point drop in the Dow within minutes. Regulators think they know what occurred, but they are moving too slowly to put the brakes on hair-trigger trading. Seventy percent of Wall Street trades take place in milliseconds, so it is no surprise that mini-flash crashes are becoming a constant. With traders now gearing up to trade on raw news feeds and Twitter, we can anticipate even more volatility. A small financial transaction tax targeting high-volume, high-speed trades is long overdue. It would throw sand in the roulette wheel and raise much needed revenue for the federal government.
5) Bigger Behemoth Banks The Federal Reserve is planning to "stress test" the big banks again. The same 19 banks that underwent the first stress tests in 2009 will be tested again, but this time the Fed says it won't release the results. Why not? Banks with toxic mortgages and mortgage-backed securities on their books and concomitant legal exposure to "put back" law suits are being kept afloat by accounting tricks, TARP and Fed loans. Honest stress tests of still weak financial institutions may well result in sales and buyouts that will further consolidate the already concentrated banking industry and create larger and more unwieldy "too big to fail" behemoths -- backed by the guarantee of the American taxpayer.
6) Foreclosure Tsunami Housing foreclosures may top nine million in 2011 and [[Goldman Sachs]] predicts the number will reach 12 million in the next few years. The result will be another significant drop in home prices in 2011 and even more families underwater. Civilized nations see the forcible migration of a city the size of New York as an economic and humanitarian catastrophe, but not the United States. The Obama administration and Congress have callously refused to take meaningful action to aid families facing foreclosure even in the face of widespread predatory lending and rampant foreclosure fraud. The only hope now for millions of American families is aggressive action by the 50 state Attorneys General who are actively investigating foreclosure fraud. Whether they have the guts to wrestle a settlement out of the big banks that slows the foreclosure machine and offers families meaningful options has yet to be seen.
7) Bankrupt Cities and States Meredith Whitney, a research analyst who correctly predicted the credit crunch, is now warning that over 100 American cities could go bust next year. She anticipates billions worth of municipal bond defaults and warns: "next to housing this is the single most important issue in the U.S. and certainly the biggest threat to the U.S. economy." States are also in dire straits. The economic shock of mass unemployment on top of years of population decline, deindustrialization and the like have left cities unable to meet their obligations to taxpayers and retirees. With the austerity nuts in charge of the House, it may take a bankruptcy of a major player to prod an appropriate federal response to this looming disaster.
8) Gas Prices above $4.00 The price of energy and other commodities shifted into high gear in late August when the Federal Reserve Chairman decided to stimulate the economy with quantitative easing. Speculators quickly began bidding up the value of asset classes like crude oil, metals and food commodities. In December, the Commodities Futures Trading Commission failed to apply position limits to these commodities, delaying rules that would crack down on speculators and aid consumers who are already seeing big price hikes at the pump. Without swift action, skyrocketing gas prices will further tank an already stalled economy.
As we hope for the best in 2011, let's prepare for the worst. The big banks are sure to deliver.
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Track the issues and take action at BanksterUSA.org.
http://www.amazon.com/Golden-Rule-Investment-Competition-Money-Driven/dp/0226243176
Golden Rule: The Investment Theory of Party Competition and the
Logic of Money-Driven Political Systems (American Politics and Political Economy Series
"To discover who rules, follow the gold." This is the argument of Golden Rule, a provocative, pungent history of modern American politics. Although the role big money plays in defining political outcomes has long been obvious to ordinary Americans, most pundits and scholars have virtually dismissed this assumption. Even in light of skyrocketing campaign costs, the belief that major financial interests primarily determine who parties nominate and where they stand on the issues—that, in effect, Democrats and Republicans are merely the left and right wings of the "Property Party"—has been ignored by most political scientists. Offering evidence ranging from the nineteenth century to the 1994 mid-term elections, Golden Rule shows that voters are "right on the money."
Ballot access laws preserve the two-party duopoly:
http://www.freeandequal.org/videos/free-equal-ballot-access-movie/
Free & Equal Ballot Access Movie
http://rangevoting.org/Strangle.html
RangeVoting.org - Stranglehold of 2-party domination
There was more turnover in the Soviet Politburo than in the U.S. Congress
Our Pay-To-Play system is now a back door to strongly influence the USA government from outside. That system is unfortunately a Constitutional birth defect, perhaps a relic of the stretch it was to include the slave states in the new nation. Roughly that same division may yet split the USA. Pay-To-Play is now so blatant, paralyzing, and debilitating that US democracy has become a joke in the world as is American Exceptionalism. Nearly beaten by China after 2001 and broke the USA is much too "large" in the world and becoming dangerously exposed.
Yet the Republicans have taken no responsibility, acknowledged no lessons learned, but just want to pick up where they left off in 2008.
Seriously, this is depressing. I hope your outlook and mine is wrong. I am stupid enough to have believed I voted for a President who would manage this and make the middle class his priority.
People mistakenly believe GM and Chrysler went broke because of a flawed business model. The problem these companies faced was decreased wages by it consumers and speculators bidding up the price of oil to $140/barrel and steel to $1200/ton from $250/ton. It was not widely reported how the foreign companied pumped billions of dollars into their domestic car companies and the American people did not see the whole truth.
Right now the oil market is in contango. We are putting millions of barrels of oil, gasoline and distillates in inventory and Cushing, OK storage is at maximum capacity. The problem we face is that speculators can go to Dubai and do the same thing, which means we have no control over them.
The problem: vacancies and falling rents combined with their future uncertainty. What is a vacant factory worth and when will someone rent it? For how much? What is the "market value" of upscale apartment or industrial/office complexes with 40% vacancy factor? How many current tenants will renew leases and at what price? As the great recession rumbles along will these factors change for the better or the worse? Most investors are wary of such risks.
Real estate investment trusts ( REIT) own a majority of commercial properties and they won't go negative (pay bank loans in excess of income) for long. The banks may soon own large quantities of unsellable mostly vacant commercial real estate. The write down will be horrendous and probably "tarped" from the US taxpayer.
This is my biggest full catastrophe banking fear for 2011/2012.
http://en.wikipedia.org/wiki/Real_estate_investment_trust
I'll fan you #2
People are probably tired of hearing me say this - but Sparks, NV (sister city to Reno) has around (only) 50% occupancy in its commercial properties. Nevada is a special case, certainly, but I know the situation is just as dire in other parts of the country. Poor decisions abound. Some friends and I are doing some business planning and need to rent commercial space for a wholesale kitchen. The local landlords are still trying to get square footage rates that they got during the boom. It's nuts. The stuff is sitting there empty and the won't budge on price. When I was in banking our commercial lending division intervened pretty aggressively to get property owners and managers to recognize what they could reasonably expect from the market. Out where I am that process has completely broken down. No doubt the valuation of a lot of these properties are just as questionable as the practice of trying to lease for 2006 rates.
My crystal ball says we are in year three of a ten to twelve year "great recession" akin to the Japanese "Lost Decade" (1990 to present).
http://www.signonsandiego.com/news/2010/jul/20/japans-lost-decade-as-lessons-us/
Long term deflation, if correct, means assets are still in an extensive bubble. During the last thirty years, large and continuing asset bubble formation, combined with increasing debt (public and private) have fueled a consumerism that created and sustained millions of jobs. That debt splurge has ended, and with it the jobs it produced. Attempts to pay down debt only exacerbate job loss.
Think of aggregate debt creation as moving future jobs to the time the debt is incurred/spent, and asset bubbles creating "wealth" out of thin air that return to nothingness as the bubble deflates. When the debt increase stops, so do the jobs it created. To make matters worse, money used to repay past debts looses more jobs through decreased consumption.
Bulletin: most of our current job losses are permanent. There is no escape, so plan
accordingly.
Joe Six-Pack and Company do not watch the TV programs or read the newspapers and magazines where the problems have been stated cogently. Yet if they do not understand what is going on and act on that understaning, things will get worse, not better. Why? Just consider the composition of the current Congress? Have an answer?
I don't know whether Jon Stewart, Stephen Colbert, David Letterman or someone with greater pull among the 25-35 year-olds could do it, but G-d knows Mr Obama cannot (too detatched, too academic) and since there is no one in Congress the majority of Americans trust, the "teacher" needs to be someone with smarts and charisma.
As I listen to my wife's and my automobile mechanic and the plumbers, electricians, yard men in our quite modest retirement community, the clerks in the shops we patronize, I realize how little they understand. I'm no expert, and I am in the minority because I read, listen to the radio and watch TV attentively to collect information and opinions I can sift through to draw my own conclusions.
Frankly, I fear what we Americans may do to ourselves far more than what individuals or small groups of terrorists, the Iranians, the North Koreans, the Taliban, al Quaeda may do.
It will take a few years before most Amercians begin to notice the decline as a economic and military power. We have already lost our moral compass and our industrial base and will limit, if not lose, our higher educational standing.
Americans are so out of touch with reality and the rest of the world, it will be a shock to find what the political class likes to call our "American Exceptionalism" is no longer exceptional.” Maybe it never was after the early 60's.
I have lived through discourse and hope that this doesnt happen but if we set back and do nothing it can and will happen and I for one will not like the outcome. So its up to those of us who do read indeed study the issues to stand up before its to late. I think late is NOW.
Sure going to be a lot of pain in the pocket book for those poor CEOs and other high dollar folks.
I sure wish I could feel bad for them.
Housing and employment are bound together. As housing values drop, unemployment goes up. As employment increase housing values increases. Looks like it will be a few more years before either housing or employment begin to increase.
The bank and other financial organizations have it all. They can gamble with our money and expect us to bail them out. They can sell toxic assets and then claim ignorance when the sucker err buyer complains. Heck, they can even act like terrorist and demand that Congress pay them (bail out) or suffer the consequences.
Some body should be accountable but that will have to wait until everyone today is dead and buried. Too many of those alive today who could do something have their hands in the pockets of the bankers!
They should give out the Clark Griswold Special instead: membership in the "Jelly of the Month" Club.
http://www.kpfa.org/archive/id/66383