Christopher Whalen makes a remarkably convincing case for why we’ve simply kicked the can down the road and why the banks could be in for a repeat of their 2008 nightmares in 2011.  If Mr. Whalen is right the banking sector is in for a whole new round of government intervention, takeovers, likely nationalizations and general disaster:

The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults.  We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.

Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy.

The largest U.S. banks remain insolvent and must continue to shrink. Failure by the Obama Administration to restructure the largest banks during 2007‐2009 period only  means that this process is going to occur over next three to five years –whether we like it or not.  The issue is recognizing existing losses ‐‐ not if a loss occurred.

Impending operational collapse of some of the largest U.S. banks will serve as the catalyst for re‐creation of RFC‐type liquidation vehicle(s) to handle the operational task of finally deflating the subprime bubble.   End of the liquidation cycle of the deflating bubble will arrive in another four to five years.

Fast forward to the 1:07 minute mark where Mr. Whalen begins (video here).


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. This is one of the best arguments I have seen in a long time. So it looks like we might finally get a shot at restructuring these banks after all.

  2. No wonder the banks haven’t participated in this rally. I wonder if the boys on wall st know something the rest of us don’t. Is the credit crisis about to strike again?

  3. i have followed chris for years……..very knowledgable….regularly shreds anyone vs. his opinion on CNBC…..

    his information is big part of my this-is-beginning-not-the-end belief.

    we will work thru this and it’ll be OK but not tomorrow….or even the next day

    5 years before i start looking thru the S&P for some beat-ups.


  4. I’ve watched this a few times already. It might be the most important thing I’ve seen in many many years. He’s not being theoretical. These are almost all FACTS.

  5. i got a name for halladay’s cut fastball after he mowed all those guys down with it in only the second no-hitter in playoff history—-the CLEAR-CUTTER

    i know its off topic but u gotta like it.

    oh…and whalen might be the pre-emminent bank systems analyst…..there’s some guy named cullen roche that is pretty good at it too.

  6. Whalen is brilliant and I agree with many of his points, but dang he’s been wrong for a long time. He said things were going to fall apart in Q4 last year calling it a bloodbath and it never even came close to happening. I think he’ll be right eventually, but when is the real question.

  7. Agreed TPC. At minimum we’re looking at running bailouts to keep the majors and servicers out of the insolvent-and-negative-cash-flow lethality. As one of the other presenters said, 2008 was the anticipation of a huge amount of losses, whereas this will be the actual losses. And I might add that the scale of the loss has only grown in the intervening time.

  8. soon is the answer.

    i hung w/TPC by a thread til may ’09, still listening to whalen

    its hard to tell which breathe of wind knocks the house of cards down,but the longer it stands,the greater the likelihood of the collapse.

    i’m not the only one feels like we are walking on eggs

  9. Yes, it makes me wonder what Ben & Co. knows that the rest of us don’t. He’s so desperate to ease the environment for the banks. No wonder he is still so clueless. He still thinks this is JUST a banking problem and he likely knows how bad the problems are in the banking sector.

    I could actually foresee a scenario in which things get worse than 2008. Just imagine what happens when investors realize that the government (specifically the Fed) is powerless to stop the deflation cycle….Then you see the whites of their eyes….

    Not betting on that yet, but Whalen makes a convincing case that the banks are in big trouble no matter what and that ultimately the piper will be paid….

  10. Yes, he’s been off on timing for sure. I think his point remains though. At some point the losses will be taken for many of these large banks because we’re not earning our way out of this fast enough….

  11. In fact, I’d argue that the main purpose of QE might just be a pre-emptive move to shore up the credit markets….Is Ben actually prescient about something? More importantly, can he even stop this from occurring?

  12. So is QE2 going to be implemented in order to pump cash into the banks BECAUSE another banking crisis is on the way? As in forget deflation inflation, Bernanke is just trying to keep our banks from going bust for the whole world to see.

    New to the scandals of our financial world so cut me some slack.

  13. I like Whalen, but didn’t he say the same thing regarding 2010?? Banks will continue to “muddle through” imho.

    Here’s all you need to know about the banks, THE GOVERNMENT CANNOT AFFORD TO TAKE THEM OVER, THUS, THEY WILL NOT…

  14. Well, it’s not even that. It’s that the public wouldn’t allow it. There are no more bailouts. It won’t happen again. That is perhaps an even scarier scenario. Thus, expect Ben to do everything he can to keep them afloat.

  15. And you know what TPC, that’s what the FED is SUPPOSED to do. Sorry for the caps, but there’s no bold button.

    The Fed was created to take the place of JP Morgan at the turn of the last century. I frankly feel for BB because he is given the impossible task of trying to help “the economy” and yet maintain price stability.

    Devaluing the currency is the right move here. I think a big problem with Whalen’s analysis is that he assumes these putbacks from FNM and FRE will continue to go through. If they are in danger of making banks insolvent, I imagine these so-called loan buybacks will fade into the night.

    Rough times are still ahead, sure, but it’s time the “doom and gloomers” understand that we will get back to work. I just hope politically we get some actual political leaders to put us back on track…

  16. You’re right to a certain extent, but I have to disagree about their priorities. Their first priorities are price stability and FULL EMPLOYMENT. They are failing horribly on the second measure. Sure, the banks are a priority of theirs, but where is their duty to maintain full employment?

  17. whoa, wait a second there fella. Their first and foremost priority was to make sure the banks are sound and avoid widespread failure.

    That’s the entire reason the Fed was created.

    As far as full employment goes, I think that’s way too much to ask of a central bank and frankly, I don’t want them to have that charge, that’s more a function of larger forces than they could handle.

    And TPC, we haven’t talked in a while, but just thought I’d show a little love, your blog is as good as ever. Sorry to hear some commenters been nuts lately. Check out the rare earth space man, I’d be happy to do a guest post if you’d like, but opportunities abound there brother, especially with the latest political moves on the Asian theatre.

  18. You’re right of course, which is another reason why this whole “dual mandate” thing is a bunch of nonsense. So far, it’s clear that Ben Bernanke could give a damn if you or I have jobs.

    The site’s come a long way from the days when I was writing one piece a day and you were the only one commenting. I never would have thought I’d be writing a website part-time, but it’s been greatly rewarding in many ways. Guys like you are a big part of why I enjoy it. Thanks as always and feel free to enlighten me on the rare earths space. It is not my area of expertise.

  19. I think Whalen will eventually be proven correct. I love his data driven focus. But he is probably early like many. In fact, I could see this scenario pushed back a few years. Then again, I could see it begin in a month.

  20. All depends on fiscal path. You’ve seen Steve Keen’s presentation? On my honor, friend, without currently unthinkable levels of deficit spending this will get so much worse than 2008 that we’ll look back and laugh at our naivete. So long as the current political wind prevails, the downward spiral beckons. We are headed to the greatest collective default and restructuring in the history of man. At least we saw it coming.

  21. Which Keen presentation?

    I have a huge amount of respect for your outlook. I’d love to hear more details on what you foresee.

    Thanks Gaius

  22. TPC,

    You tell me how to do it. I’ll gladly send you an email or put it in the comments section of some post.

    It can be summed up in about 5-6 paragraphs regarding my macroview and where I think long term money should be placed.

    As for the memories, I found you when you were commenting on Zero Hedge and I said, this guy makes sense. The rest is history…

    You’re one of the best buddy, don’t let anyone give you any flack. All the best.

  23. prescient11
    “As for the memories, I found you when you were commenting on Zero Hedge and I said, this guy makes sense. The rest is history…”

    same here too. I remember the times, when articles were rarely commented or at most there were only few comments and it was much easier to read them all then now:-)

  24. Identifying structural problems on a balance sheet – forecasting real balance sheet asset values through DCF or the like and comparing with financial and contingent liabilities – is easier than identifying timing. The problem with timing is that you often need a catalyst to drive reality in the assets, and predicting the timing, or even nature, of that catalyst is near impossible.

    For example, I was an equity research analyst. I had the Big Three, particularly GM, and their subsidiary suppliers, Delphi Visteon, pegged as technicaly insolvent in 2001. But the housing bubble and commensurate consumer credit & spending binge saved their bacon for another 7 years.

    The Banks have the Fed on their side, so who knows long they can prop this up through “extend & pretend”

    Chris Whalen is brilliant. He takes extremely complex operations and financials (statements) and distills the issues into simplicity. These companies purposely create complexity (externally) to obfuscate understanding of the real issues.

  25. Chris Whalen has been saying the same thing since March 2009, I don’t know how to make it anymore. Honestly, in terms of market timing, I find the only one worth following is Marc Faber, he is the guy who truly understands how market works. As for macroeconomics, I think Shiller and Roubini are good. I rate folks like Whalen and Whitney as broken clock, they know very superficial stuff and draw conclusions with gut feelings, complete waste of time if you follow them as proved by their track record.

  26. I find Whalen interesting, he’s obviously quite sharp and his take on some of the details is correct. But he has been wrong on the big picture for quite awhile.

    The government has been working hard to build up bank reserves and to control the flow of foreclosed real estate inventory. Meanwhile, the spreads on loans is at record levels, so banks are making a killing on their lending.

    Going forward, you can expect that the smaller institutions will be positioned to be gobbled up by bigger fish, and the government will use things not discussed much in the business media, such as asset guarantees, to facilitate this process. There are reasons why excess reserves have been piling up, and this is one of them. To the extent that larger institutions have some questionable items, they’ll be able to use these acquisitions to gain assets that will help to prop them up.

    The floor is essentially in. Putting in a floor does not equate to an upward trajectory, but the much-vaunted collapse is not likely to happen. Betting against USA, Inc. is usually a losing call.

  27. Bravo! Finally frank and lucid commentary upon the debacle. I appreciate and am indebted to the exposure to Whalen and especially the link to the AEI video. Most illuminating!

    If I had to share an opinion it would be that the AEI panel all seem to reluctantly come to the conclusion that QE2, whether shock and awe or dribble, is the only course of action left to play. Personally, there are exogenous factors which are not taken into account in the disscussion which will mitigate some of the doom and gloom presented there, however we are in for a protracted and diffcult period of economic instablity within the current financial system.

    The question begged is how to profit by knowing the situation?

    One last thought. Can we ween ourselves from the current financial system to one which puts more of the animal spirits back into personal liberty of self sustainment? Away from One World regulation and nationalism? To me this is the only true redemption from the morass.

    Thanks PC.

  28. A lot to chew on. And excellent comments, as usual.

    Here’s a pretty good link of the foreclosure morass that will eat up the bank’s profits. Interesting take on a bill that ground to a halt on Obama’s desk.

    A few questions come to mind.

    1. If banks are making so much on the spread in interest rates, why are they so reluctant to lend? I would suggest, at least on the residential side, that they will ONLY lend on loans they are 100% certain will not be rejected by, or returned upon default by Fannie, Freddie, FHA.

    2. If the government is so eager to get the banks to lend, why not expand the guidelines at the above mentioned GSEs? In particular, they could expand the very good HARP program that allows some borrowers to refi to current rates (good credit, full doc, and currently a very clean Fannie Freddie loan, though underwater in LTV)to loans that are NOT currently Fannie/Freddie. The proposed FHA program has no teeth, and we’ll not see much action from that.

    3. There seems to be some traction for acceptance of nationalizing banks (the Swedish solution), yet no one believes there is the political leadership to do so, or to state the obvious, it would be political suicide for ANY national candidate to suggest it in the foreseeable future. What political conditions would exist that would allow this to happen?

    4. To echo Mike O, how could the individual investor profit (even modestly) from knowing the situation? It’s clear the banks already largely contol the government, and are spending whatever is necessary to ensure that their situation is optimized.

  29. If banks are making so much on the spread in interest rates, why are they so reluctant to lend?

    Banks have traditionally been conservative institutions. They only stopped being conservative when private-label securitization markets were eager to buy the debt and to provide them with high volumes of fee (not spread) income. The excesses of this decade were, by historical standards, an uncommon anomaly.

    But there has been a long run paradigm shift, as private MBS markets are now here to stay. The banks will become aggressive again when securitization markets rebound. It won’t happen next week, but it will happen eventually; investors want stable investments, and mortgages are perceived as being stable investments, so this is just a matter of time.

    If the government is so eager to get the banks to lend

    They aren’t. The Fed’s priority has been on building reserves. Most of the talk about increasing lending has been lip service; their actions betray their words.

    There seems to be some traction for acceptance of nationalizing banks (the Swedish solution), yet no one believes there is the political leadership to do so, or to state the obvious, it would be political suicide for ANY national candidate to suggest it in the foreseeable future. What political conditions would exist that would allow this to happen?

    It ain’t gonna happen. It probably should happen, but the odds of it happening are about zero.

  30. It’s not that banks are unwilling to lend. It’s that there are not enough (creditworthy) customers walking in their doors.

    This remains very much a demand side issue. Consumer credit has never contracted like it currently is. There just isn’t that much demand for debt because investors are paying down their current excesses.

  31. Thanks for the thoughtful answers.

    On one key point, I’d differ.

    TPC says there are not enough “creditworthy customers” walking in the door. I disagree.

    I am a loan originator. It naturally colors my preception and positions, but I also benefit from a close up view of the situation.

    During the unusually lax years, some people qualified for credit that would not have before, and do not now. Some of those people ARE creditworthy (good payment history, good FICO scores), they just cannot prove the ability to pay in traditional ways (lack of provable income from many self employed borrowers, for instance). They could benefit from a refi program that accepted past mortgage payment history as adequate proof of ability to pay, and make that apply to only rate/term refis (no cash out, of course).

    Additionally, many traditionally creditworthy borrowers took out unconventional loans, (Alt -A, interest only Option Arms, high balance 2nds, etc). Most of them have been shut OUT of the abiltiy to refi into conventional financing via the HARP program, because their loans are not Fannie or Freddie, and they are underwater. Yet, the banks, and the borrowers (and quite possibly the economy at large) would benefit from the stabilization of moving those loans into conventional 30 yr fixed rates at 4.5 to 5%.

    Yet, it is not happening, because the LTV (or CLTV) is too high to be able to qualify for any program but the HARP.

    My point is, there are common sense solutions that can still be applied, that don’t involve gross giveaways. Will they entirely stop the train wreck? No, probably not.

    But many casualties (voluntary and involuntary defaults) can be averted, and at small present cost.

  32. That’s part of the problem. What looked liked “creditworthy” 5 years ago is not necessarily “creditworthy” today.

  33. Another very useful post on this excellent site. Chris Whalen is terrific, and he will be proven right about the stocks as well as the fundamental solvency of the banks. About the timing, no one — NO ONE — knows, not even the canny Marc Faber. I do still have one reservation about Chris Whalen. Although he was a terrific resource in the run-up to the fall of 2008, for some reason he wrote an impassioned defense of Indymac. He and another analyst I know kept me from adding Indymac to my roster of extremely gratifying and lucrative shorts. Whalen’s advocacy of Indymac remains inexplicable to this day, and it reeks of hidden motives.

  34. I am as smart as these guys, but I have been reading and listening to many economist and finacial guru’s since 2005. I have been hearing of the banking problems, real estate bubbles,credit bubbles, government’s debts, consumer debts, and the lack of a industrial and manufacturing job base in the U.S. as far back as Sir John Templeton. All of these gentlemen have many ideas in common.

    We have been told by many people buy gold, silver and other commodities, buy bonds, sell bonds, get out of real estate, sell stocks, and buy stocks.
    I followed their advice and unloaded most of my real estate, and bought precious
    metals. I am curious to what you think of gold and silver now? Is it time to get out? Is the dollar going to be safe for the deflation ahead? And lastly, how much
    time do we have before the big deflation starts to unravel?

  35. @ Roger Ingalls

    Last year my credit score would have got me a loan from either VA or FHA. I checked my score today and it has improved, but I no longer qualify for FHA – not sure about VA. My income increased, but I do not want to chance being turned down.

    The reason I say I do not qualify is because I use to be in fair territory with a lower score. I now find myself in very low territory with an improved score.

    I recently moved to Florida and I am happy renting at this time, But I had hoped to buy a house in a year or two.

  36. TPC says there are not enough “creditworthy customers” walking in the door. I disagree.

    The definition of creditworthiness varies depending upon whether there is a secondary market into which the lender can dump its debt. If it has to hold the loan and earn return on the spread, then the lender will be more conservative. If the lender can sell off the loan and convert that debt into a source of servicing income, then it will be more aggressive as it works to increase its base of fee income.

    So ultimately, modern debt markets are driven largely by equity. When investors lose interest in the product, the lenders revert back to old behaviors.

    Lenders are also interested in building reserves, as they store up cash for possible future events, both positive (money making opportunities) and negatives (additional hits to the balance sheet.) So there is a limit on the supply side as well, which makes them more conservative than the norm.

    Yet, the banks, and the borrowers (and quite possibly the economy at large) would benefit from the stabilization of moving those loans into conventional 30 yr fixed rates at 4.5 to 5%.

    That helps the borrowers, not the lenders. Lenders prefer variable rate debt because of the (theoretical) reduction in their risk from interest rate exposure.

    At this juncture, lenders are relying upon asset inflation policies and a variety of government backstops and guaranties in order to support their balance sheets. These policies work to a point, but the tendencies for the feds to rely upon carrots but avoid sticks results in a certain degree of lender apathy in tackling the problem. However, the Fed is most interested in preventing a banking collapse, not in accelerating the pace of lending.

  37. Thanks, great comments.

    I’m not suggesting accelerating lending (applying it it cash out or purchases), but stabilizing existing loans. There are a huge number of loans out there with unnecessary uncertainty, for the lender, and the borrower.

    Reducing that uncertainty should help all responsible parties.

  38. In a year or two, guidelines will likely change, based on what I have seen in the past.

    Focus on continuing to improve your FICO, adn accumulating a down payment. If you do not understand why your FICO is low (and specifically what to do to improve it), get a local loan originator to walk you thru it. It should not cost much, at most the cost of the credit pull, around $20. Could be free.

    Minimum FICO scores for FHA loans vary by lender, and may be affected by other risk factors.

    In the meantime, keep watching the housing market there, for signs of a bottom. Some investment advisors I follow are suggesting it is quite close, specifically in those areas like yours (FL), that took the largest hit in home values.

    However, there are huge differences in opinion on that matter, much like the price of gold, and the state of banking. Good luck!

  39. I’m not suggesting accelerating lending (applying it it cash out or purchases), but stabilizing existing loans.

    With asset inflation policies and guaranties on pools of distressed assets, there isn’t much motivation on the lending side.

    In any case, a lot of debt is excessive, so it can’t be refinanced. It should be written down, but lenders don’t want to do it if they can get away with avoiding, while the feds didn’t want them to do it because of the technical insolvencies that would have resulted it from it.

    The building of these excess reserves has been a priority in part so these assets could eventually be written down, at point when the values were stable, the inventory flow under control, and there was enough cash on the balance sheet to take the hit. After a couple of years of this, that time is about here.

    Now the question is the degree to which the government will be willing to put a gun to the bankers’ heads in order to force some degree of a market clearing upon the banks. That degree remains uncertain, but what we do know is that the banks will do the bare minimum if permitted to get away with it.

  40. “… but what we do know is that the banks will do the bare minimum if permitted to get away with it.”

    Amen, Angry MBA, Amen.

    All carrot, no stick.

  41. I am watching this circus and feel a little depresses that people like Rubini did not “see” certain things. Russian economist Mikhail Khazin wrote a book in 2001 called “Dusk of Dollar Empire or the end of Pax Americana”. So, how come he saw what was going on but these guys did not. Mind you, Khazin was not the only one. So, the appropriate question to ask here is this. Are these people indeed “financial gurus” and is their education so good that after receiving Noble prizes and being praised on every corner they don’t see things coming? Or they just lie to us that they didn’t see things coming? Either way the picture is not pretty. Why should we listen to the liars or dorks? Now comes an interesting part. They began to blame the government. Not that I am trying to defend the government. But where have they been when the government was about to pass these regulations and stimulus packages? Oh, they were on advisory boards of banks, insurance companies, presidents and governments (that same ones they blame now). Guys, we don’t need to be rocket scientists to figure out simple things. First-unit of measurement. If we were to call economics a science, we have to admit the fact that science usually operates with measurement standards. Meter is a meter in Africa and South America. That’s why parts of an outsourced Boeing fit together even though they are manufactured in different countries. Can you imagine if those manufacturers would have to build a part based on a meter which length would depend on market value and vary throughout a day. I think anyone would call it insanity. But this is exactly what we have in the banking sector. Let’s keep on listening. “That was a recession caused by balance sheet problem……”. Did you here that? Mr. Rubini must have been smoking something. The other leitmotif of his presentation is that if somebody farts a bit too loud the market will collapse. All of them advocating another quantitative easing, in plain English meaning more money printing. That is devaluing our savings. Brilliant idea. This is in fact what they are after. Can you imagine what the Chinese and Arabs are going to think after “investing” for 20 years in America? Going back to our example with the airplane. Can you imagine if one of the engineers on the project to overcome a problem would suggest to devalue the meter? Make it 105 centimeters and equate a centimeter to the performance of every participant. Can you imagine the delirium we live in? That these front group, aka “shit tank” is telling you is that you are in for a full scale Depression 2.0. They also tell you, that they are planning to inflate the currency and that you’ll be left with nothing after years of work and savings. What does it mean for an average guy? You saved 10,000 bucks that used to buy a car and in the end the same 10,000 will buy you a couple of boxes of matches, if that at all. So, what should one understand after listening to this crap for 2 hours:
    1.The problem began with allowing a private cartel to print money for public use.
    2.The problem accelerated when a product base was removed from a financial system in 1971. In other wards, the crooks explained that it makes more sense if the meter is going to vary in length every day and depend on many variables we have no clue about.
    3.The problem exacerbated when the crooks decided to give away money to lure more debt, at the same time totally confused you with higher/lower interests rates, as if with a 0% interest rate the banks could not block a purchase of a house that was too expensive for the buyer-more then 3 annual salaries. They let it slide. The higher interest rate creates nothing but inflation in the system where there is no currency attached to a unit of measurement (it doesn’t have to be gold or silver. In the old days it was cattle, wheat, other products that have essential meaning for our existence. Today it could be a unit of fossil fuel or a unit of electricity). The opponents will scream now-how the banks would make money. Very simple. The banks would need to invest money in the production capacity and get the results from the operation of the production, not from usury. BTW, they price of this unit cannot fluctuate, as it cannot fluctuate in the example with meter, because rising commodity prices only add assault to the injury and cause inflation. Let’s take 5 spoons and 5 dollars. Each spoon costs a dollar. If you emit more dollars, that will mean you have to pay more monetary units for the same amount of products. If you manufacture a spoon and add 1 dollar in circulation, then the price of each unit will remain constant. It is time to mention now that if the country maintained its silver standard in charge of the Congress (regardless of how inflexible it might have been) we would never have this problem on our hands, let alone ideas of diluting silver coins to justify more of them in circulation. Total delirium. Deflation. What’s wrong with deflation? Is it bad that now you can buy a house for 1/3 of the price it used to cost in 2006. No. What’s bad is losses of banks that they transferred onto your ass. What’s bad is that banks froze landing to businesses that are now totally dependent on bank loans to sustain their operations and those businesses started laying you off, the workers who support the economy with purchasing power. What should have happened is the bankruptcy of all the financial institutions that participated in the thievery. But our paid politicians rushed to bail out the banks with your money-future taxes and current pensions.
    4.At this point any reader should figure out that this crew is not offering a solution. They are describing a path of how they are going to bankrupt your ass. Quick lookup of what happened with Weimar republic and the role of JP Morgan will wake you up. BTW, pay attention to fact that one of the Chancellors, Gustav Stressmann, got a Nobel Peace Prize for ruining his nation. Is this a coincidence that Barry Soetoro also got the same prize?

    In conclusion, the bold eagle mentioned in the end how good it would be to keep paying mortgage without taking equity. That’s what I was doing – trying to pay off the debt faster. Until we lost our jobs, and then the house. I wish I took the equity out and bought some gold with it. I wish I did not have to pay down payment as many so called “minorities”, so that I could walk away from my mortgage and show the bank a middle finger. The last question asked at this meeting is very important. Is capitalism over? In the first place it was not capitalism, it was gangsterism based on cartel run financial system. But the answer is – yes, it is over. The usury based privately controlled financial system is over. America will break apart as a result of this crisis – more precise, it will be broken apart, just like the Soviet Union. The globalists do not need a strong state if they control the money printing, especially on a Global scale. But there is good news at the end. The globalists WILL fail.

  42. Actually, people are mostly defaulting on their debts to reduce the overall level of consumer debt, not paying them off.

  43. “I spoke with my Private Banker today at Wells Fargo to inquire about refinancing my $2.4 million mortgage, which is at 6.375%… and replacing it with a new loan that they are currently quoting at 4.625%. This would be a 70% LTV. The savings to me would be $3,518 per month.

    “He informed me that they would not be able to just do a loan modification to my existing loan and set it to the new interest rate…but that I would have to apply and qualify for a new loan under the new more stringent guidelines dictated by the Feds.

    “In speaking with him, I determined that I would not be able to qualify for this new loan, given that my income has decreased significantly over the past two years (I am not a Wall Street banker, but self-employed) and because they no longer look to assets or reserves under the new guidelines.

    “So even though it is obvious that it would be less of a burden on me to make a mortgage payment $3,500 less than what I am currently paying (on time and never missed)… thus making the risk of a default substantially less… they will not make the adjustment.

    “He said they do not have any loan modification programs for people who make their payment on time every month and who are not facing foreclosure.

    “At the same time, he tells me that 14% of all jumbo loans now at Wells Fargo are 90 days past due. There is a very high likelihood these will go into foreclosure, become shadow inventory and depress home prices even further… which will increase the possibility of strategic defaults which he says they are bracing for at Wells.”

  44. OBAMA! wasn´t in charge of the Administration in 2007-2009. What are your talking about?. And I don´t suscribe to any of OBAMA!’s thougts.

  45. When you make a statement like “Failure by the Obama Administration to restructure the largest banks during 2007‐2009 period” the entire thesis is in danger of total credibility loss. I like Whalen and the IRA, but really, come on.

    Obama is an incompetent idiot, there is no doubt, but he was NOT IN POWER during the time cited. The Bush Administration made the decision not to wind up the Banksters but to bail them out. I guess Whalen has a dislike for Obama, but that should not mean you just make stuff up.

  46. “Economics” is no different than “Physics”, for every Action (sic. Government intervention) you will get a Reaction (Intentional or Unintentional).

    Case in Point: As a Real Estate Broker located at ground zero, in Reno, Nevada, I am witnessing first hand the “Unintentional Consequences” and negative impact that the recent “Foreclosure Moratorium” is perpetuating upon the real estate market, which is significantly impacting not only our US Economy, but the Global Economy at large.

    During the week after the announcement of the moratorium, I had four (4) owners cancel four “Short Sale” escrows, who then rented out their properties, to unsuspecting renters, so that these deadbeat delinquent owners could continue to collect “Rent” monies. (Since these owners were already 6 – 12 months behind in their mortgage payments already, they obviously have no intentions of using this rent money towards paying their mortgage…)

    These property owners are essentially “gaming” the system, thinking that this moratorium will go on forever, and represents a renewed “Bonanza” for unjust enrichment.

    No doubt now at the continued expense of the US Taxpayer.

    Every month that a homeowner is permitted to stay (sic. Squat) in a mortgaged property, without having to pay a dime to the Bank, is essentially committing a “Stealth Bank Robbery”, on assets that the Bank themselves are also trying to obscure and hide these troubled assets on off-balance-sheet Structured Investment Vehicles (SIV’s), with the explicit blessing of the Federal Reserve and US Treasury, in direct contravention of normal accounting practices, by permitting the suspension of FASB Rule 157, that previously required financial institutions to Value troubled assets that they hold on their books, according to “Mark To Market” accounting standards.

    What we are really witnessing in America, which is really the Core Problem with our Economy… is not a lack of “Confidence” in our financial system… but a profound systemic “Lack of Character” in the souls of the Administration who run this country… but also a Lack of Character all the way down to the individual vindictive consumer who is essentially retaliating against the system that “Trapped” them in the first place, by not properly policing and regulating the mortgage and banking industry.

    We are also seeing a plethora of another type of “Distressed Homeowner”, what I call the “Strategic Defaulter”, which is the homeowner who originally bought their home right years ago, but did multiple “Cash Out” refinancing… to buy the Two (2) BMW’s, the Boat, the European Vacation, etc. and who are now deep underwater in their mortgage.

    What I get a kick out of when I interview this type of “Distressed Homeowner” who is now professing “Woo is Me”… is when their “Rubber Band Conscience” begins to reason, “What’s in it for ME”… if I keep my home… that now has lost 75% of its value.

    Well, I remind them that “What WAS in it for YOU” was the two (2) BMW’s, the Boat, the European vacation etc… and we both then laugh at each other…!

    So if you do not believe that “Our” economy is in REAL TROUBLE… then you probably do not have at least “One Ear to the Train Tracks)… listening to the lack of a “Pulse” in the Character not only in soul of the American Consumer… but also in our Government Leaders who continue profess more intervention upon intervention which only reaps unintended consequences that is actually exasperating the our financial system making things even worse.

    If you believe, as I do, that we cannot have an honest sustainable economic recovery, until we first have an HONEST recovery in the housing and construction industry… it will not happen, until BOTH our Government Leaders and the American Consumer come clean and first begin to address looking INWARD towards their own character, and begin to genuinely honor our contractual obligations… and not intentionally kite, obscure, and hide our responsibilities with smoke and mirrors accounting trickery or unconstructive government intervention…

  47. I like Whalen and the IRA, but really, come on.

    Part of IRA’s business model is to promote itself as an alternative source to the convention ratings agencies.

    That niche requires that IRA offers ideas and insights not offered by the mainstream firms. Unfortunately, that almost forces the firm to be contrarian, even at times when it isn’t necessarily appropriate to be contrarian. This creates the risk that being correct will become less important than is staying on message.

  48. That’s “conventional”, not “convention”. (Apologies for the typos – I need to stop multitasking…)

  49. Unfortunately it will be long after the bandits have ridden away with the loot.