The surge in global liquidity now underway is likely to provide further fuel to the next major asset bubble, which is likely to already be in the process of forming. Potential candidates are gold and commodity prices, emerging markets and resources shares. But the absence of obvious overvaluation suggests we are still in the foothills of the next bubble, which likely has years to run, providing plenty of opportunities for investors in these assets in the interim.
WASHINGTON (MarketWatch) — The U.S. banking industry is entering a new crisis where operating costs are rising dramatically due to foreclosures and defaults, an analyst said in remarks prepared for Wednesday afternoon.
“We are less than one-quarter of the way through the foreclosure process,” said Christopher Whalen, managing director at Institutional Risk Analytics in remarks prepared for an American Enterprise Institute event.
“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.”
Markets focus on central banksA day after Tuesday's big rally, Paul Vigna looks at what may be driving Wednesday's markets, with much of the focus on the possible actions of global central banks, as well as the ADP report, which was less-than-expected.
He added that recently agreed-to foreclosure moratoriums by GMAC, Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 13.42, -0.14, -1.03%) and J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 39.71, +0.07, +0.18%) are “only the start of the crisis” that threatens the financial foundations of the entire U.S. political economy. See earlier story on 'robo-signer' crisis.
The three lenders announced recently they would halt some foreclosures until they could determine whether or not employees signed off on affidavits without verifying the information in the paperwork.
Whalen argues that 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,” he said.
The U.S. government recently wound down its Troubled Asset Relief Program, one that the Treasury Department said was effective but has been largely scorned by the broader public. Analysts say it would be politically difficult for the government to adopt a similar program. See story on Treasury's estimate of TARP costs.
Whalen is speaking at an AEI event, entitled, “Living in the Post-Bubble World: What’s Next.’ In addition to Whalen, other participants include Nouriel Roubini, the famous pessimist and economics professor at New York University, and UBS Investment Bank’s Thomas Zimmerman.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
(Source : MarketWatch.com)