Six Reasons Another Financial Crisis Is Inevitable

[xchrom]

http://www.commondreams.org/view/2013/09/16-2

***SNIP


1. The Shadow Banking System is Still Gigantic

A systemic cause of the financial crisis was the dramatic rise of an array of lightly regulated financial entities with huge and complex balance sheets composed of volatile assets and risky debt—from insurance companies like AIG to hedge funds to private equity firms. Much of this system remains intact five years after the crisis, and is still relatively unregulated. According to Deloitte's Shadow Banking Index, some $9 trillion was pumping through the Shadow Banking System last year in form of repurchase agreements, money market mutual funds, mortgage-backed securities, and collateralized debt obligations. That's way down from the Wild West days of 2007, but still much greater than a decade ago.

2. Banks Are Bigger Than Ever

Another reason for the crisis was the sheer size of banks, a scale greatly amplified by risky leverage, and the concentration of the banking sector. When the huge bets made by these banks went bad, the entire financial system was put at risk. Yet today, as a result of banking consolidation during the crisis and a lack of regulation, the surviving banks are even bigger than before: JP Morgan, Bank of America, and Wells Fargo are all larger than they were before the crisis. Proposals to break up large banks, and re-institute Glass-Steagall, have gone nowhere—despite even being embraced by the likes of former Citigroup chair Sanford Weill.

3. Banks Are Still Reckless

Think the financial crisis cured banks of their appetite for risk? Think again. JP Morgan's multi-billion losses in the London Whale episode show that the appetite for big risks in search of big profits remains alive and well on Wall Street. And risk management, constantly touted by Jamie Dimon as the crowning achievement of JP Morgan, remains wholly inadequate given the size and complexity of trading operations. The meltdown of MF Global is an equally telling episode: Jon Corzine put that entire firm and all its shareholders at risk through bets on overseas currencies that could have yielded massive profits, but instead brought total disaster. Meanwhile, the Volcker Rule—which would limit certain risky investments by banks—languishes as multiple federal agencies try to agree on a common draft and rules that should force banks to keep adequate capital reserves and avoid becoming over-leveraged do not go far enough.


4. Derivatives Remain Under-Regulated

Risky derivatives were centrally implicated in the financial crisis and Dodd-Frank has imposed new rules around what Warren Buffett famously called "financial weapons of mass destruction." Starting in June, the Commodity Futures Trading Commission has required many U.S. derivatives transactions to be conducted through centralized clearinghouses, but so far the rules have only been implemented for interest rate and credit derivatives. And it's not clear how much these clearinghouses will stop outsized risk taking and U.S. firms can still engage in plenty of hijinks with derivatives overseas, outside the purview of U.S. regulators. Rules for transparent trading have not yet gone into effect and they include loopholes that could weaken their effects on the markets. Finally, while data on derivatives transactions are being collected, it is unclear when it will be made consistent and meaningfully available so that the regulators can monitor derivatives markets properly.

[R. Daneel Olivaw]

1. More...

5. Nobody Was Punished for the Last Crisis

Despite a vast array of financial abuses and trillions of dollars in lost wealth, not a single high-level executive of any financial firm faced accountability in the form of criminal charges and prison time. At least after the last meltdown, involving Enron and Worldcom, some of the top miscreants actually went to jail. Not this time. And that reduces deterrence of future wrongdoing.

6. Government Regulators Are Still Outgunned

Regulating some of the wealthiest and most powerful business entities in the world is not easy under any circumstances. But it's especially hard when government oversight agencies don't have the resources they need to do their job. The Securities and Exchange Commission and the Commodities Futures Trading Commission have faced a multi-pronged assault over recent years. The powers of these agencies have been battered by budget cuts in Congress (and now through the sequester), legal challenges to new rules, and a blizzard of lobbying—often by ex-officials from these very same agencies. The fact that so many rules required by Dodd-Frank remain un-implemented is telling evidence of the weakness of these agencies and the pushback they have faced to financial reform.

To be sure, some good things have happened over the past five years, particularly the creation the Consumer Financial Protection Bureau. Yet many of the most dangerous features of a casino-like financial system remain in place.

[SammyWinstonJack]

10. #5...looking forward......

[R. Daneel Olivaw]

13. Well, we have to look forward. If we looked back to the past and acted like we should have

then we wouldn't have the chance to make the same mistakes all over again.

Simple, ya see?

[snooper2]

2. Is it scheduled for this year or, 2018 or?

[JoePhilly]

3. My prediction ...

Prediction Part 1: We'll see no less than bi-yearly predictions of another collapse over and over again, right up until the next collapse actually occurs.

Prediction Part 2: And those who had been predicting the next collapse will say "See, we told you so." ... while ignoring all of the prior predictions that were wrong.

We've had predictions of another collapse no less than once a year since 2009, usually more frequent.

During the first 3 years of the Obama Presidency, each summer, a DOUBLE-DIP recession was predicted.

Now that we've entered Obama's second term, its clear there was no DOUBLE DIP, and instead the DOW has DOUBLED.

Sad news for those who invested based on those double dip predictions. They probably sold when the DOW was under 8,000.

[Javaman]

5. my prediction...

predictions will increase.

[JoePhilly]

6. That's going to dilute the predictions market for sure!

[Javaman]

7. Buy short. :)

increased predictions will drive the accuracy down.

[JoePhilly]

8. I hear they've outsourced prediction production to China.

Soon Walmart will have a Predictions section.

[Javaman]

9. Walmart will then squeeze the psychics for more predictions at a lower cost...

forcing the psychics to come up with cheaper visions of the future.

[NoOneMan]

16. QE has pumped up the DOW FYI

Its not exactly the best barometer of the economy at the moment

And Wednesday it may drop like a rock. Something to keep in the back of your mind.

[JoePhilly]

18. If you knew that was going to happen ...

clearly you BOUGHT like crazy at 8,000, and then kept buying until the DOW doubled ... and now you are selling, right?

I mean the DOW's at 15,500 right now.

As for the drop on Wednesday ... cross your fingers!!!!

Oh ... could you please tell me how much of a drop I should expect on Wednesday, and at what level should start buying back in ....??

Thanks.

[NoOneMan]

19. Yes

I've sold everything (which isn't much). Ill buy back when its under 14K or in the mids. Everyone has to do what they are comfortable with. Remember the last "tapering" of QE announcement resulted in a quick little bloodbath. The final announcement (which could happen Wednesday) could trigger a big quick sell-off of at least a few hundred points in a day if its anything like the previous predictive tapering announcement (and maybe a thousand in a week before people start buying back--we will see, but it shouldn't be pretty).

Do you believe stopping QE will not dramatically impact the stock market or something? Just the shear number of people (including mainstream news media) drumming up fear about it is an indication what the majority, non-contrarians will do. For a limited time, weigh in now.

[JoePhilly]

21. As of today, the Market doesn't look too worried.

We're up about 500 points since a week ago. So a drop Wednesday of a couple 100 points wouldn't mean much. Unless you are a day trader.

I think most of the impact of QE is being factored in. And after the 2008 collapse, companies responded by hording cash because they determined that they could no longer expect the financial industry to provide the short term money they'd come to rely on. They've been building up cash buffers ... that's why they've been slow to invest and slow to start hiring.

The lower bound I'm watching is 13k. That was the last low level that was really contested.

A drop to 14k would only get my attention if we dropped quick and stayed there for a while. But I'd be more tempted to wait to see if the 13kish boundary were possible.

[NoOneMan]

22. Sounds like its just getting setup for profit taking to me

No, QE isn't being "factored" in beyond how investors can use the news to maximize their profits. If so, June's announcement wouldn't of looked like:



Yeah, 13K is a good number, but Im not sure Im comfortable waiting for that. I don't want to miss on an easy opportunity to make some cash. If conditions change, then yes, maybe I'd hold out but itd have to be dramatic (and I don't think markets are that dramatic right now)

[LiberalEsto]

4. "Nobody Was Punished" is the main reason we're still at risk

Until these swine are behind bars, doing hard time, it will be business as usual.

[PowerToThePeople]

11. 1 reason, Capitalism is still our economic system.

[marmar]

12. k/r

[Romulox]

14. #7) Both parties fell all over themselves recapitalizing the worst offenders with taxpayer money?

Which both guaranteed that bad actors would remain in place AND that their bad behavior would be given a perverse incentive.

[L0oniX]

15. "Hey we can do this and not get punished" n/t

[ronnie624]

17. The entire concept

of wringing a surplus, or 'profit', from a thermodynamic system, is a display of collective insanity, anyway. Capitalism must go, if humanity is counting on a long-term future for its civilization.

[The2ndWheel]

20. Civilization is a resource concentration process

The "profits" of the planet into the few hands of a single species. Capitalism is just the outfit for today. Yesterday it was something different. Tomorrow it'll be something new.

[ronnie624]

23. I agree completely. n/t

[90-percent]

24. Student Loan Bubble

"Some say" Student Loans will be the cause of the next bubble.

If you can't get out of student loan debt even by bankruptcy, could somebody please explain how such a collapse could happen?

I feel there will be another collapse somewhere, some part of the economy nobody smart is scrutinizing. Collapses are coming more frequently, but very few can predict them. They sure do know how to explain the obvious reasons they happened AFTER THE FACT!

-90% Jimmy