Sunday, October 10, 2010

Massive Banking Crisis Starting To Unfold

With Bank of America halting foreclosure proceedings in all 50 states, it's just a matter of time before the remaining Big Banks follow suit — whether they want to or not. Given the level of fraud committed, the government will surely force them to. As it stands, GMAC and JP Morgan Chase have also decided to at least delay additional foreclosures.

The repercussions of this will be extraordinary. Such a moratorium will slow any attempts to clear the backlog of foreclosed properties across the nation, and it will cut off the flow of mortgage payments that the banks heavily rely on. These payments are the banks bread and butter.

Already, millions of people have stopped paying their loans and are living for free as they wait to be foreclosed upon. Many are demanding to see the paperwork trail, knowing that the banks can't prove ownership of their homes. They don't have the titles. No one knows where they are.

And the looming lawsuits will be disabling to the banks. Even if they win most of the cases, the legal costs, the time in court, and the further bad publicity will be highly damaging.

All of this is putting massive strain on the banking system, which could potentially collapse without a government intervention. How unpopular would that be?

If the Republicans take control of the House in November, they will fight like hell to prevent such an intervention. Their constituency would revolt in open rebellion. Another bailout could potentially spark a revolution by an increasingly seething American public.

“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,” said Christopher Whalen, managing director at Institutional Risk Analytics.

The foreclosure process will take some time to unwind. The shadow inventory has been growing rapidly. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market.

According to Whalen, “We are less than one-quarter of the way through the foreclosure process."

UBS Investment Bank managing director Thomas Zimmerman cites statistics that predict there could be 11.5 million foreclosures over the next few years.

These are very bad signs of what's to come, and how long this nightmare could play out.

If the biggest US banks were forced to recognize their actual losses, and the true value of the residential and commercial properties on their books, they would be insolvent.

We have a massive banking crisis on our hands, folks, and things are about to get very ugly.

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