The next bank crisis: New wave of loans going bad?

NY Post ^ | October 6, 2009 | CHARLES GASPARINO

[Scanian]

THE conventional wisdom for months now has been that a combination of bail out money and low interest rates (next to zero) has ended the banking crisis. Yet evidence is growing that the banking system is far from healed -- that the crisis could very well make a comeback.

Yes, the nation's largest banks and financial firms, like Citigroup and Bank of America, are healing -- or at least show no signs of imploding as they did a year ago. Shares of the major financial firms are up (even longtime basket case Citigroup) since the market tanked in March.

And, yes, even legendary pessimists like James Grant now think the economy is set for a "V-shaped" recovery -- a strong and fast pickup after the sharp downturn.

But other analysts are starting to fear that we're in for Round Two of the banking crisis.

[mefistofelerevised]

The employment crisis is more depressing than what BofA and the rest of the big banks have to deal with. People who are worried about how they are going to survive could give a damn about BofA. I’m working and couldn’t care less about the money mongers.If I want something I pay cash, if I don’t have the cash I don’t need it.

[Wyatt's Torch]

And that doesn't account for the trillions in commercial-real-estate loans and bonds that have yet to take any significant hit at all -- but (most analysts predict) will be crashing in the months ahead even if unemployment stabilizes at 10 percent.

The non-residential sector continues to fall and most forecasts show double digit declines for 2010 and some show additional declines into 2011. It might be 2012 before the non-res construction sector sees growth again.

Meanwhile, with all the "printing of money" and all the liquidity of the banks, monetary velocity continues to be at historically low levels. Everyone is holding cash which leads to no economic growth (and, fortunately, no inflation but could lead to deflation)

[steveyp]

That is correct. Every ounce of effort right now is husbanding cash and preparing for 2011. I feel confident through mid-2010, and by that time I want to be able to live on 1/4 of what I currently make. The Bush tax cuts will expire at the end of ‘10, and the bill must come due for the profligate spending now.

I would sooner begin the onerous taxation now so my children may have a chance to live without the state’s shackles.

That or spit on my hands, hoist the black flag, and start slitting throats.

[whitedog57]

This is OLD news. It has been predicted for several years.

As much as Freepers want to blame the crisis on consumers who binged on credit (which is true), the Fed and the Federal government are mostly to blame.

Seriously, the banks knew that they would be bailed out if things went to hell. So, why did BofA and other lenders make 5% down, IO ARM loans in CA and AZ which are zero deficiency judgement states once the downturn has started? The consumers got screwed big time, and the banks got bailed out.

The banking system and Wall Street are NOT free market. They are heavily tied in to government and government influence and regulation.

Why do you think that the inspector general saying that Treasury lied? Of course they did. They banks are going to collapse, particularly BofA, Citi and maybe Wells.

There is sooooooo much bad debt on banks that loaned in AZ, NV, CA and FL that the system cannot survive.

Sorry for the bad news. But this was discussed in Congressional testimony over the last few years and the Democrats ARE IN ON IT. THEY KNOW!