The Stage Has Been Set For Another Credit Crisis

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If you think yesterday's market action was something to worry about, you ain't seen nothing yet.

President Barack Obama getting re-elected sets the stage for another credit crisis.

When the president came into office in 2008 he had a mandate to fix the banking system, which consisted of too-big-to-fail banks holding America and its economy hostage to their greedy schemes.

He swept that mandate under the door of Congress and the Federal Reserve.

The president has no position on the big banks, and it seems he likes it that way.

By lightening up on his already watered-down rhetoric about making banks toe the line, he got campaign money from them. So did Congressmen. That money came from the Federal Reserve.

Now that the president has won a second term, he's not about to fight Congress over their pandering to the big banks, since he's got other things to fight with them over; rather, he's going to advocate a lite-touch going forward to allow banks to continue to strengthen their balance sheets so they can fuel an American recovery.

It seems to be all happening under the cover of darkness. And, it's not going to work.

No matter how much money the Federal Reserve feeds banks via QE4-ever, enough so they could pay off their bailout loans, pay themselves big bonuses again, pay trumped-up dividends to entice equity investors, and continue buying Treasuries with no-interest financing, their balance sheets are still laden with derivatives, stale mortgages and sickeningly more government debt that's about to get downgraded.

This president blew his first mandate and the result is that it's like déjà vu all over again.

The too-big-to-fail banks are all a lot bigger now than they were in 2008, and none of them are any more stable or less prone to the massive correlation of similar asset mixes and counterparty exposure (namely themselves) that if pierced will trigger another crisis.

With a presumed second mandate that probably encompasses all the agenda items he didn't finish, or start in his first term, the president isn't about to take the lead on addressing what's really wrong with America's economy.

And what is that? It's the public's total lack of confidence in the capital markets and their ability to finance growth where it most needs to be nurtured, close to home.

But, before we all liquidate our portfolios, maybe we should give freshly elected Elizabeth Warren a shot at leading the Senate to the high ground on the future of banking in America.

If Warren champions smaller, better capitalized banks that aren't too big to destroy us all again, maybe the president's socialist tendencies, especially when it comes to big banks and the Federal Reserve, will be checked and free markets somehow restored.

In the meantime, someone hand me some sell tickets.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Edouard D'Orange | November 8, 2012

    Elizabeth Warren? Ha, ha, ha. You've got to be joking again. The lying, socialist, Obama toe-licking, toady is nothing more than a shill for Obama policies. You'll see. You're such a good kidder, Mr. Gilani.

  2. Christel Haupt | November 8, 2012

    November 7, 2012

    Your children will be the victims of this election.
    They will live in a world of incompetence and mediocrity. The American experience is over.
    Your grandchildren are already socialists. This will be their country to control soon. I hope I will not last that long to see it.
    But your grandchildren are not the Children of America the way we knew it.
    They will live in a world of slavery and mediocrity and will not know the difference.
    The American Experience is done and over with. Let's not kid ourselves!!
    The citizenry at large wants to be assisted and secured and are willing to bargain a lot in the battle.
    The battle was not American. This election was bought and paid for by foreign interests.
    This man is all about ruining the US.
    We are going to have major riots and rationing. I see gas prices and electricity going through the roof.
    This fraud was committed on nearly 10 million people in The United States.
    You and I know exactly what this means to this country.

    • DD | November 8, 2012

      All Empires fall from grace and America is no exception – history repeats. If American's think America is so great, one can only imagine how great the British Empire experience or the Roman Empire experience was in their day and they were around "centuries" longer that the US ever will be. The world survived the BE and RE (and others) collapse and the world WILL survive the collapse of the American Empire as well.

    • Francis S | November 25, 2012

      The American people will never knowingly adopt Socialism. But under
      the name of 'liberalism' they will adopt every fragment of the Socialist
      program, until one day America will be a Socialist nation, without
      knowing how it happened." (Norman Thomas Quote)

  3. dourdan | November 8, 2012

    shanyn

  4. Benjamin Kline | November 8, 2012

    We as a society seem to embrace the beguilement to centralized everything, often accepting the promises of efficiency & being free of the responsibility of making decisions. What we forget every time is that centralized control systems allow corruption on a centralized & universal scale- robbing all of society in the end.

  5. Pat Brandt | November 9, 2012

    My wife shared this with me. I read a few articles and would like to receive this too

  6. fred | November 9, 2012

    i sincerely hope you are joking. elizabeth warren to fix something. wow what an absolutely asinine concept.

  7. lightardknot | November 11, 2012

    Stated well ED and FRED

  8. Hal McNeely | November 13, 2012

    How can our leaders ever cure the ADDICTION that our Federal Government has instilled in the ignorant/naive by buying their vote with promises we can't afford? None appear to believe the politicians until they promise "freebies" to be paid with only the largess of others… the "wealthy".

    As many know through difficult life-experiences, curing ADDICTION must emanate from the person that is addicted, and then, typically, only after they suffer great pain and anguish; only then, may they realize that the KOOL- AID was poisoned… before handing the cup of doom to their children.

  9. A. Terrace | November 14, 2012

    ED and FRED are on the right track!

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