Chris Whalen of Institutional Risk Analytics provided some recent clarity on the foreclosure crisis and its impact on the banking sector.  Whalen believes the foreclosure crisis merely proves that the credit crisis never ended and that the government “bought time” for the banks.  That time is now running out and the banks simply do not have the capital, the earnings or the capability to absorb the losses in the pipeline from the continuing foreclosures.  Ultimately, Whalen believes restructurings are likely to occur in 2011 as the U.S. government is finally forced to deal with the banking sector as it should have in 2009.

For more from Chris Whalen see his recent must see presentation at AEI.


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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. Wouldn’t it be sweet justice if we got another shot to shut down all of these banks? At this point, the whole “but it will sink the economy” BS won’t fly with the American public. We saved these assholes once and it did NOTHING for us. If they need help again they’re going to have to find help elsewhere.

  2. The majority of America was against TARP, yet it passed. I believe when push comes to shove, the banks will be bailed out again, ultimately. Until ‘the people’ actually vote different representatives (corporeally and philosophically) into office, and these representative understand that their jobs are actually on the line, the powers-that-be will remain in control. Until representative’s fear of the people’s wrath is greater than their greed for office and station, there will be no meaningful change to our current financial / govt / industrial complex.

    IOW, baring an absolute bloodbath in two weeks, expect another bailout, my opinion.

  3. I think it is even worse than that.

    Even if there is a blood bath, they will still bail/cover up/de-legitimize opposition to the banks.

    A blood bath implies a GOP take over and they inevitability must serve their corporate masters.

    I hope to be proven wrong.

  4. “Buying time” is the only solution if you believe Richard Koo, so, TPC, who do you believe, Richard Koo or this Whalen guy?
    You are looking for pieces of anything that supports your own opinion I’m afraid, this is a classical behavioral phenomenon. I was quite impressed by your posts when I found it some weeks ago, now, it seems just like another zerohedge.

  5. In my opinion, the bailout didn’t do “NOTHING”, it made things worse. The smaller banks that would’ve stepped in to provide credit to the economy in 2008 are now out of business, unable to compete with the 0% cost of funds accessible only by the mega-banks that were saved in the first place. Who will step in now?

  6. “WHALEN: ..” , “Whalen believes …”, “Ultimately, Whalen believes”
    Where do you see agreement or disagreement by TPC?
    Is it absolutely impossible for Koo and Whalen to both be right or both wrong at the same time about anything?

  7. I’m sorry you see it that way. I have explained my bearish tilt in the past. It is not a permabearish tilt, but rather a trading strategy within a secular bear market so yes, my macro commentary will tend to be bearish.

    You might want to read the first section of this post before writing me off as some sort of dooms dayer. That is not my position at all. I am actually VERY bullish about America in the long-run. Unfortunately, a balance sheet recession puts us in quite a near-term bind….


  8. Personally, I appreciate your approach. It’s balance enough for me. We get enough Saut and Doll and other permabulls on this site in addition to the bearish commentary. Most of the bulls are just broken records anyhow. They have nothing to contribute to the market besides “stocks for the long-run!”

  9. Roger,

    That’s good stuff. I think someone mentioned that the author of the Mauldin piece was a guy who writes a sensationalist blog. It’s unfortunate that he would focus an entire letter on this author’s comments without fact checking it all.

    I am by no means an expert here, but it seems like this whole thing is a bit overblown and likely just one more bump along the road. Certainly not the nail in the coffin as Mauldin implied it could be.

  10. Foreclosuregate is bad PR for the banks certainly, but there’s good business in promoting the “show me the note” model, at least to the shouters of such.

    But seriously, the whole question of an investor’s property rights thrown out over technicalities?

    People forget who runs this government….at their peril.

    Here’s a link to a scammy attempt to scare up some homeowner into calling and needlessly paying for a “forensic audit” on their loan. The blogger is very reputable, and a friend of mine.


  11. the banks have been cooking the books for decades. They took enormous writedowns in 2008 and 2009, and their stock is worth more now than it was then thanks to the Fed and the PPT. If the banks do their part to refi people’s mortgages then they will not take a huge hit. If they foreclose on everyone then I hope they go bankrupt because they will have already shafted half the country.

  12. TPC or any other reader for that matter,
    Can you explain how Citi and the other major U.S. banks appear to be provisioning less for bad and doubtful debts.

    I’m all over the Aussie banks, but I need someone to enlighten me on the process that takes place over there