Tags: Christopher | Whalen | Banking | Crisis

Christopher Whalen: Banking Crisis Is Far From Over

By Dan Weil   |   Thursday, 17 Jun 2010 08:05 AM

The banking crisis isn’t near an end, despite the recent improvement in earnings, says Christopher Whalen, managing director of Institutional Risk Analytics.

“There are still a lot of bad loans out there,” he told Newsmax.TV Money.

“We’ll see banks shrink over the next year or two, because they will be writing off more bad loans than they’re making good loans. That’s going to have very negative implications for the economy.”

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Banks are still suffering record loan-losses and have a lot of real estate to sell, Whalen says.

He has harsh words for the Obama administration’s approach to the problems.

“The current government is taking a very socialist path,” Whalen said. “It’s called ‘muddle along, extend and pretend.’ The Fed is going to subsidize the banking industry at the expense of anybody who earns money through interest rates.”

That amounts to a multi-trillion dollar transfer to banks. Instead the government should restructure the industry to address embedded losses, he says.

Government stimulus has lifted the economy until now. But, “For the rest of the year, the economy will be characterized by further deflation in asset prices and shrinkage in available credit,” Whalen said.

In particular the housing market is “quite shaky” and will be lucky to stabilize by next year, he says.

Whalen expects more bank reform legislation after the November elections and thinks that’s a good idea.

“We need to re-impose some kind of order in the market, not let people do private placements in the dark,” he said.

These securities should be registered with the Securities and Exchange Commission, Whalen says. “Greater transparency would discourage the industry (from wrongdoing), because otherwise they’ll get sued.”

He doesn’t think much of the current financial reform bill in Congress. “It’s a fundraising opportunity for members of Congress,” Whalen said.

“We’re not really reforming a whole lot. Politicians may not let these banks fail, which means bailouts are still possible.”

The basic problem is our addiction to debt, Whalen says.

“Having our banks as captive zombies of the Treasury fits in with the plans of our political class very well. Barney Frank and all his friends love having banks as captive constituents who have to write them big checks for campaign contributions.”

As for Europe’s debt crisis, the Fed will end up bailing out the countries in trouble, Whalen says.

“The Fed is taking the place of the IMF. We’re so afraid of the political ramifications of failure that instead we print money.”

Despite the dollar’s recent strength, its future isn’t bright, Whalen says.

The problem again is our exploding debt burden. “By behaving in a reckless and dissolute way, we’re forcing the world to find an alternative to the dollar.”



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The banking crisis isn t near an end, despite the recent improvement in earnings, says Christopher Whalen, managing director of Institutional Risk Analytics. There are still a lot of bad loans out there, he told Newsmax.TV Money. We ll see banks shrink over the next...
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