The Stage Has Been Set For Another Credit Crisis

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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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