However, from a de-centrist standpoint, there has not been much analsys on the fact that people around the nation are so involved in a Massachusettes election (or any other for that matter). I’m only proposing that I’m scared that state representation has become a national issue (this election is hardly the time to be talking about this because the two parties putting all their money into contested elections in Ohio or North Dakota has been the norm), but it would be nice to go to bed knowing that my state representatives to Congress are mine and not the rest of the nation’s reps as well. I only hope mass attention, does not some how help hurt local representation any more. On a philisophical level I was ready to abandon all attachment to this election on the basis that Mass is Mass, and I don’t live there so it’s none of my business. I’m out on blogger support against Barney Frank for that very reason too. He’s not my rep.

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Getting very weary of the absurd White House (etal) claim and attitude that a total financial meltdown of the banking system and a fall into depression was avoided.

Banking and debt-crisis does not occur over 12 months, it historically occurs over about 10 years. There was a massive peak of 4,000 US bank failures during 1933, four years after the initial stock crash and after repeat equity recoveries and slumps.

The FDIC may now prevent such traditional ‘runs’ on insured bank deposits, but this does not prevent a run on unregulated and uninsured ‘securitised’ assets (ain’t that term a joke) in shadow-banks. That’s exactly what happened in Sept-Oct 2008, and it drained and crippled the formal ‘regulated’ TBTF banks as a result.

For anyone to claim that the current financial crisis is “mission accomplished”, ignores all quantitative evidence and historical parallels, not to mention continued falls in lending and the steady rise and rise of default, plus a 30% synchronised fall in global trade that’s still way below the old-normal. Most of the default and toxic asset writedowns are still coming. At best this crisis is at the end of the beginning. Obama and his advisers are clear-cut fools if they really believe it’s all sorted.

The 1982 to 1992 ‘S&L’ bank failure period was comparatively minor compared to the current situation, but it generated a peak failure of around 530 banks in one year, but built up to this peak over 4 to 5 years (same as the 1933 4-year failure peak delay). Once even a non-systemic US banking crisis begins, it takes many years for the losses to finally kill-off all the hiding-and-hoping insolvent banks, to restabilise the remainder.

But this is not some rather mild 1990′s type recession, this is a global systemic financial crisis and international private-debt crisis within a major protracted global recession with structural (lagging) high unemployment, with a general global real estate implosion with broke local, state and national governments. To assert such a crisis could be over in only 15 months, or to imagine that it will not be a minimum of three times worse at its peak than the S&L bank failure period, is wholly delusional.

“… Bank losses that come in bad times are particularly bad because consumption is lower in bad times. Just when the agent is worse off in terms of consumption, the bank might fail. So, in a recession income and consumption decline and banks tend to fail, because their borrowers also tend to fail. …” – Gary Gorton, Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007, May 9, 2009.

The US shadow house inventory is still out there, and all those postponed unprocessed foreclosures are still coming, as are the losses-and the shadow banking effects of this. Last year only 140 bank failures, and yet US bank stocks are virtually single-handedly driving a record ‘recovery’ in the Dow-Jones index?

Is that sane? Irrational exuberance is a euphemism for ‘dumb blind greed’.

Extend-and-pretend works only until you don’t get paid, then all pretence ends. And when it ends businesses fail, and when businesses fail, that’s when banks get stressed and traditional ‘runs’ on near insolvent banks normally occurred and credit froze solid. This is what the shadow banks will do to each other when extend and pretend fails to pretend any more and businesses fail in numbers while “larger than expected losses” accumulate at the banks.

You can bet the un-insured unbacked shadow-banking system is watching extremely nervously as banks like JPMorgan and BOA dribble out their “higher than expected losses” tales, each quarter. The shadow banking system isn’t fooled, their margin losses rise every time this happens and their toxic-asset losses feed straight back into the formal and insured Govt-backed banking system’s balance sheets, which then just further increases margin problems for both formal and shadow-banks. All the while the fear in both on-book and off-book banking divisions rise.

Like credit growth, or debt-deflation, this asset contamination process is also a self-reinforcing feedback where losses lead to losses, which lead to more losses elsewhere, which then trigger some more losses. Hence these “higher than expected losses” tales will continue to dribble in for >5 years. The TBTF banks attempts to ‘securitise’ (off-load the liability to loss on others) resulted in a trap. They eventually believed their own BS and locked themselves into a self-reinforcing liability and loss-making mechanism.

It self-reinforces both positively, yes, but also negatively when things go bad. We saw a spectacular growth and we will also see a spectacular reversal, because this was always just an undifferentiated Ponzi system, where massive final losses were implicit. That’s why the banks unloaded these ‘securities’ in the first instance-they were a ticking bomb and they knew it.

At some point nothing will prevent the shadow-banks ‘running’ on each other (again), and no one can stop it when it begins. The only place it can be ‘stopped’ (temporarily that is, as in 2008) is by either bailing-out or nationalising the formal banking system, to make it appear quasi-solvent (again). Or to let the informal shadow-banking system destroy the formal TBTF banks, to get back to systemic stability quickly, so sustainable rebuilding can actually occur.

At present the actual systemic crisis and vulnerability is only getting worse. I see no solution to this but to eventually abolish securitised ‘assets’ (i.e. the generally unknowable level of high liabilities) altogether, in order to break this feedback cycle to prevent continual “higher than expected losses” in the formal banking system.

But then you have eliminated the bankers and politicians cherished source of easy-credit, which caused the whole mess, for use in malinvestment and over-consumption, and that’s why nothing is being resolved.

Higher than expected losses are actually a structural problem-not just some more bad loans.

Raw greed for easy-credit is preventing resolution, the system is unable to self-repair or self-correct and the Government doesn’t want to repair it either so a worse bank failure crisis and credit freeze is assured. Soon we will be right back at square-1 (Lehman’s collapse) only the Dow will fall to <5,000, with credit in a glacier on Pluto, unemployment 15%, US consumers not willing to make discretionary purchases, nor wanting credit any year soon, whilst saving all they can. And deficits and taxes increase sharply, and public services evaporate, while public anger swings off the dial.

Enough of these sick White House denials!

We ARE in a global financial crisis, and it's only just begun. Maybe in ten years it will be almost over, if things go exceptionally well, but with this level of political denial and avoidance, it can only get much worse than need be. The White House doctrine that the danger has passed must be debunked and disallowed if there is to be any credible resolution.

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Amazing what an election can do to refocus the mind on what the people want–for once.

You’re jumping the gun on this and on making an assessment of Obama’s economic grade.

The fact is we are one year in. The parallel to Reagan shows you that what happens after one year is NOT what we must expect for the full four or eight.

My take is very poorly; probably a “D” grade. The only thing I think he even got directionally right was the stimulus bill (ARRA), and there are plenty of arguments that it was insufficient and poorly focused, especially in creating jobs. His horrendous pussyfooting with the banks was wrongheaded and clumsy–and directly traceable to his key economic advisors Summers & Geithner who are still there. His early endorsement of Bernanke was also wrong.

This was not “change we can believe in.” It was not change. Period. Just more of the same old Washington money-driven cronyism.

If the Democrats loss in Massachusetts serves as a wake-up call, he may be able to bring his grade up in his second year. The scheduled meeting and presser with Volcker today may give some indications. But, frankly, this will be more about partisan politics–bashing the banks to make Democrats look good in November. Still, it can’t be worse than the last year.

I think we are getting some traction on these issues.

See my latest post on the new Volcker proposal that Obama is backing:

http://www.creditwritedowns.com/2010/01/obama-backs-volcker-regulatory-plan-in-dramatic-about-face.html

The election of Brown to the Senate signals the final envelopment and capture of the Tea Party movement by Republican Party operatives bent on killing off Obama once and for all. What began as a legitimate anti-bailout populism successfully has been subverted into a crypto-fascist, imperialist crusade in support of torture, Israeli ethnic cleansing, and war with every Muslim nation on earth, and domestically into an selective, anti-deficit paranoia certain to bring a reprise of 1937. We are looking at something chillingly similar to the political situation that existed in immediately pre-Hitlerite Germany, what with a feable, almost powerless left and a growing, menacing, fascist right. Sadly, many well intentioned people stupidly have allowed themselves to be taken up into an “opposition” that in reality is more hyper-Regime than anti-Regime. In present circumstances, the appearance of an authentic opposition appears to be many, many years away.