Nomi Prins: The Next Financial Crisis Will Be Worse Than the Last One

Authored by Nomi Prins via TruthDig.com,

We’ve made it through 2017. The first-season installment of presidential Tweetville is ending where it began, on the Palm Beach, Fla., golf course of Mar-a-Lago. Though we are no longer privy to all the footage behind the big white truck, we do know that, given the doubling of its membership fees, others on the course will have higher stakes in the 2018 influence game.

The billionaire who ran on an anti-establishment platform went on a swamp-filling, deregulatory and inequality-producing tear, in the process creating the wealthiest Cabinet in modern United States history and expanding his own empire along the way. His offspring, Russia-related investigations aside, didn’t do too shabbily either. White House policy adviser Ivanka Trump’s brand opened a splashy new store in the lobby of Trump Tower in Manhattan, just in time for Christmas.

If you look at the stock and asset markets, as Donald Trump tends to do (and as Barack Obama did, too), you’d think all is fine with the world. The Dow Jones Industrial Average rose about 24 percent this year. The Dow Jones U.S. Real Estate Index rose 6.20 percent. The price of one Bitcoin rose about 1,646 percent.

 

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On the flip side of that euphoria however, is the fact that the median wage rose just 2.4 percent and has remained effectively stagnant relative to inflation. And although the unemployment rate fell to a 17-year low of 4.1 percent, the labor force participation rate dropped to 62.7 percent, its lowest level in nearly four decades—particularly difficult for new entrants to the workforce, such as students graduating under a $1.3 trillion pile of unrepayable or very challenging student loan debt. (Not to worry though: Goldman Sachs is on that, promoting a way to profit from this debt by stuffing it into other assets and selling those off to investors, a la shades of the subprime mortgage crisis.)

Those of us living in the actual world without billionaire family pedigrees possess a healthy dose of skepticism over the “Make America Great Again” sect that believes Trump has transformed America “hugely,” for record-setting markets don’t imply economic stability, nor do 40 percent corporate tax cuts translate into 40 percent wage growth. We can march forward into 2018 carrying that knowledge with us.

But first, a recap. For the U.S. financial system, 2017 was marked by five main themes: The GOP’s “You All Just Got a Lot Richer” Corporate Tax Reduction Plan; Big Banks Still Bad; The Fed’s Minor Policy Shift; Debt; and Deregulators Appointed to Positions of Regulatory Authority.

Banks Are Still Big and Bad

The Big Six banks have paid billions of dollars in settlements for a variety of frauds committed before and since the 2007-2008 financial crisis, but that didn’t keep them from tallying up new fines in 2017. The nation’s largest bank, JPMorgan Chase, agreed to pay $53 million in fines for scamming African-American and Latino mortgage borrowers with disproportionately higher rates than for white borrowers. The Consumer Financial Protection Bureau fined Citigroup $28.8 million for not disclosing foreclosure-avoiding actions. Bank of America got fined $45 million for its foul treatment of a California couple trying to save their home.

But the Big Six bank that received the most attention in 2017, as it did in 2016, was Wells Fargo. The number of people affected by its fake-account creation scandal grew from 2 million reported in 2016 to about 3.5 million. That increase resulted in Wells Fargo expanding its associated class-action settlement to $142 million.

Wells Fargo was mired in smaller scandals, too. For instance, it charged 800,000 customers for auto insurance they didn’t need, raised mortgage rates for certain customers without properly disclosing it was going to, and made a bunch of unauthorized adjustments to people’s mortgages.

No Glass-Steagall Reinstatement, More Deregulation

The idea of reinstating the Glass-Steagall Act of 1933 featured in both the Democratic and the Republican National Committees’ platforms during the campaign season. But Trump’s treasury secretary, Steven Mnuchin, made it clear multiple times there would be no such push from the administration, arguing against doing so before senators including Elizabeth Warren and Bernie Sanders.

To emphasize his disdain for regulation and oversight, Mnuchin also pushed the Financial Stability Oversight Council, over which he presides, to vote 6 to 3 to rescind American International Group’s designation as posing a potential threat to the U.S. financial system. Thus, AIG will no longer be paying penance for its role at the epicenter of the last financial crisis by filing regular risk reports anymore. Federal Reserve Chair Janet Yellen also supported the move.

Consumer Financial Protection Bureau Bashing

In a major blow to citizen security, Richard Cordray, the Obama-appointed regulator, resigned as director of the Consumer Financial Protection Bureau in November.

During his six years at the helm of the CFPB, which the Dodd-Frank Act formed in 2011, the 1,600-person regulatory entity accomplished a lot. It has provided $11.9 billion in relief to consumers for enforcement actions affecting more than 29.1 million people, handled 1.2 million consumer complaints and garnered timely responses on concerns for 97 percent of consumers.

Still, Trump appointed White House budget director Mick Mulvaney to the post that Cordray vacated. Remember: Mulvaney as a congressman wasn’t a fan of protecting consumers. “I don’t like the fact that [the] CFPB exists,” he said. “I will be perfectly honest with you.”

Over at the Office of the Comptroller of the Currency (OCC), Joseph Otting, Mnuchin’s former partner in the takeover of IndyMac and subsequent flurry of foreclosures, was confirmed to the top position. In that spot, Otting will be able to help the Trump administration dial back more post-crisis bank regulations.

The Fed and Debt Bubbles

The Federal Reserve raised rates three times this year. With trepidation that more or larger hikes would cause a market meltdown (because cheap money has lifted banks and markets over the past decade), each time the Fed acted, it did so by the smallest sliver it could—25 basis points. All told, this brings the total rate hikes of 2017 to 75 basis points. The short-term interest rate now sits in a 1.25 percent to 1.5 percent range.

 

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As part of its rate-hike-into-strength message, the Fed forecast that the job market and economy will further improve in 2018. Trump’s appointed Fed leader, Janet Yellen’s No. 2 man, Jerome Powell, will take stewardship of the Fed in February 2018. Policywise, he will do exactly what Yellen and Ben Bernanke did before him, given that’s how all his votes went—albeit while advocating less oversight of the big banks. That’s because cheap money turbo-boosts the stock market, and quick rate hikes can harm the bond markets.

The reality is that the Fed and the administration are scared that selling too many bonds back into the capital markets will result in broader sell-offs, which could lead to another credit squeeze and possible recession, not to mention losses for the big banks exposed to those corporations.

Zombie Companies

Fueled by cheap Fed money and low rates, the amount of outstanding corporate debt has nearly doubled from pre-crisis levels of $3.4 trillion to record levels of $6.4 trillion.

 

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By Oct. 1, U.S. investment-grade corporate debt issuance had already surpassed $1 trillion—beating 2016’s pace by three weeks. The amount of speculative-grade (or junkier) corporate debt issued during the first three quarters of 2017 was 17 percent higher than over the same period in 2016. Altogether, that means that U.S. corporate issuance is set for another record year, as well as the sixth consecutive year of increased corporate debt issuance.

As history has shown us, all bubbles pop. Until then, certain companies are the equivalent of the living dead. The Bank of International Settlements (BIS), or central bank of global central banks, defines zombie firms as “firms that could not survive without a flow of cheap financing.” The latest BIS Quarterly Report labeled one of every 10 corporations in emerging (EME) and advanced countries as a “zombie.”

Corporate debt of nonfinancial U.S. companies as a percentage of GDP has surged before each of the last three recessions. This year, it reached 2007 pre-crisis levels. That didn’t end well last time. Plus, now, that debt has been powered by central banks the world over.

And whereas, in the past, companies used some of their debt to invest in real growth, this time corporate investment has remained relatively low. Instead, companies have been on a spree of buying their own stock, establishing a return to 2007-level stock buybacks.

 

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Corporations and Taxes

Companies have taken advantage of cheap money to increase their debt and buy their own stock, even though Trump and the GOP peddled the notion that decreasing their tax rate by a whopping 40 percent would move them toward diverting their money from the stock and bond markets into jobs and wages.

The GOP tax bill cuts the corporate tax rate from 35 percent to 21 percent. Collectively, large U.S. companies only pay an average effective tax rate of 18 percent anyway. They only contribute 9 percent to the overall tax receipts the U.S. government receives each year.

Companies like General Electric haven’t paid any taxes in a decade. But more to the point, that tax cut is another form of cheap money giveaway. Even Jamie Dimon, chairman and CEO of JPMorgan Chase, concurred. He called the tax cut a “QE4” (another round of quantitative easing, added to the three rounds the Fed executed over the past decade to reach $4.41 trillion in credit).

Looking Ahead to 2018

As we enter the new year, consider this: All the Fed talk about “tapering” or reducing the size of its book, and even the 75 basis points of rate hikes, are a setup for the next act of the same play.

Since the Fed’s announcement that it was going to stop reinvesting the interest payments on the bonds it’s holding, the size of its book has been about the same. There’s always a mismatch between what the Fed says and what it does.

So despite its tapering talk, the Fed’s balance sheet is down a mere $10 billion (an equivalent of a rounding error) this year. Its book of assets remains at $4.41 trillion, a figure equivalent to 23 percent of U.S. GDP. Incoming Fed Chair Powell is more likely to keep supplying cheap money than withdrawing it from the markets in the instance of any wobbles.

What does that mean? Financially speaking, 2018 will be a precarious year of more bubbles inflated by cheap money, followed by a leakage that will begin with the bond or debt markets. The GOP tax cuts won’t technically kick in monetarily for corporations until after the year is over in 2019, but the anticipation of extra funds will fuel more buybacks. This will help to provide cover for any rate hikes the Fed implements, because it provides corporations the ability to boost their own share prices further.

Meanwhile, the Treasury Department, Federal Reserve and other smaller regulatory authorities in Washington will push for greater deregulation of the financial systems and banking industry on any level possible. If there is another financial crisis in 2018 or later, it will be worse than the last one because the system remains fundamentally unreformed, banks remain too big to fail and the Fed and other central banks continue to control the flow of funds to these banks (and through to the markets) by maintaining a cheap cost of funds.

Politically, no one in any position of power will do anything to fix any of this.

Comments

shitshitshit bobcatz Jan 2, 2018 11:30 PM Permalink

Why don't we see any more pictures of the chick? 

Had she become obese like 98% of useless psychopath gurls and thus inefficient for click baiting or has the person who reported about her simply forgot to show her ass off? 

I refuse to read blah blah from her as long as we don't get to see her charms again. 

I call on all men of good will to follow my lead and this boycott. 

In reply to by bobcatz

Son of Captain Nemo Dr. Engali Jan 2, 2018 9:07 PM Permalink

You forgot your "/s" Dr. ... But at this point, given what we've witnessed in the last 6 months ending last week as the biggest milestone of desperation in "money & banking" fractional reserve bags of tricks...

YOU DON'T NEED IT!!!

My understanding is that we will be entertained shortly by an ex-CEO of a major security software company eating his own penis to mark that milestone occasion with honors!

In reply to by Dr. Engali

whatsupdoc Jan 2, 2018 9:13 PM Permalink

Frankly, you'd have to have the integrity of Christ himself to actually do something about it.  Do you seriously expect to find someone with enough money to buy themselves the Presidency who would actually go out on a limb of extreme personal endangerment to 'right the ship' ??

This article mentions the richest cabinet in modern history ... money is the only thing of interest and the only motivational factor in all of these creatures minds.  Its every man for himself - as the saying goes.

Oldwood whatsupdoc Jan 2, 2018 9:29 PM Permalink

More over generalizations. The reality is that most people pursue great wealth for the power to impose change, either in benefit of themselves or their ideologies. The framers understood that it would be those achievers who would gravitate to positions of power and saw that as a good thing, people who had actually DONE something and who actually had experienced the real world, not lived in some protected enclave of a "higher learning institution".

What your comment demonstrates is the effectiveness of decades of progressive indoctrination that imposes the notion that ANYONE who achieves great wealth is necessarily a deeply flawed and corrupt individual. Best of all is the assumption that someone who has never achieved anything with their life is qualified to lead others.

And we wonder why shit is going down the tubes. 

How about we simply judge people for their actions rather than who we think they are because they have achieved more than we ever thought we could.

In reply to by whatsupdoc

dirty fingernails Oldwood Jan 2, 2018 10:49 PM Permalink

IDK, being handed millions  as seed money before inheriting millions would have given anybody on hell of a leg up if they had half a brain. I sure as fuck wouldn't be where I am today if I was given such an opportunity. As it is, I make more in 3 months than my family lived on per annum when growing up. Considering what he started with, Trump is a fucking failure after +40 years of attempts. You seem to be unable to parse the reality from the myth, like a true believer Obamaton or Trumptard.

In reply to by Oldwood

whatsupdoc Oldwood Jan 2, 2018 11:18 PM Permalink

Whilst I appreciate your high notions they are indeed quite naive.  There is absolutely no chance that anyone can amass a huge personal fortune without unfairly and unconscionably doing so on the backs of others.  A free and open and fair system it is not. 

If you were honest about it you would see from the great array of its dealings within and without that America and many Americans do not like a level playing field.  They screw anyone for advantage at the corporate level.

 

In reply to by Oldwood

Oldwood whatsupdoc Jan 3, 2018 7:16 AM Permalink

Hillary money good, Trump money bad?

Stop sucking from the progressive drip. There are people smarter than you, better looking that you, RICHER than you and that does NOT make them bad, evil or wrong. The ideology that only government is pure, that thieving billions from people who earn it, that they are the Robin Hoods doing good and only THEY deserve the finer things in life as reward for their deeds is bullshit. 

The wealth of the nation is built by real people doing real things, not leaches rewarding sloth.

People who hate Trump are afraid they might actually have to work again, compete rather than simply demand entitlement. Do you DESERVE a good job, a nice home, great healthcare? Or do you EARN IT?

In reply to by whatsupdoc

Oldwood dirty fingernails Jan 3, 2018 7:24 AM Permalink

If pirates steer the ship, there must be a lot of weak minded drones doing the rowing.

Build your own boat.

Are you afraid?

Is it too hard?

Is it bowling night and you simply deserve some leisure time?

Get off your ass. Life ain't fair nor easy. Never has been. My dad starting out shucking corn by hand for 25¢ a day, until he was shipped off to Europe to fight the Germans. What is your terrible hardship to shoulder, the one preventing you from achieving? Or is that you fear never being as rich as Trump, so you simply see no point in trying? Easier to beg Hillary for a punitive tax on wealth?

In reply to by dirty fingernails

Oldwood Jan 2, 2018 9:20 PM Permalink

I can only assume Nomi didn't vote for Trump.

Are we really pretending that Trump, the guy who got NOTHING from wall street, is actually responsible for wal street ramping because he somehow was a shill of the bankers?

And are we forgetting the sham the "consumer protection act" was....an open door for government to surveil every financial transaction in the world...for our own protection?

Not to mention the glorious Dodd-Frank Act all in itself.

Nomi needs to find a more productive use for her time.

Oldwood TuPhat Jan 2, 2018 10:26 PM Permalink

Yes he does, as he well should. My take is that Nomi is claiming his association with wall street bankers is the cause for the market's rise, when as a small busnessman talking to others like me, it is WE who are now willing to spend, to invest and THAT is what's driving the markets and economy at large. Confidence, NOT corruption. Something quite different from the way Obama did it. 

The market is NOT going up because Trump is dumping cash into it through banker buddies. It's going up because business actually BELIEVES Trump is GOOD for business.

The fundamental still suck, but we know that setting on our hands crying or even expropriating the wealth of taxpayers will fix it...likely only kill it. Our ONLY chance is to fire this economy up and get people to actually WORK again. I have been moaning about the inevitable collapse for years, like so many others. For the first time I believe we have a chance...only a chance, but still a hell of a lot better than banking that our gold stash will somehow make us the rich guy on the block in a complete economic meltdown.

In reply to by TuPhat

dirty fingernails Oldwood Jan 2, 2018 10:56 PM Permalink

Sorry, to be the prick that pops your ego, er bubble, but the market's rise has jack fucking shit to do with you. Maybe you missed how it isn't allowed to dip? Maybe you missed 73 record highs in 2017 or the never before seen 12 months of up. Yeah, its dingleberry investors driving the market and suddenly Wall St is no longer periodically raping investors. Meanwhile back in reality the Fed prints and buys the market and deficits no longer matter.

 

In reply to by Oldwood

Oldwood Archibald Buttle Jan 3, 2018 6:57 AM Permalink

And you know this how? Are you a small business owner? Do you have employees? To you invest in real productive assets? Or do you whine because you are too afraid to do more than demand higher pay from your employer for doing less.....because you are "entitled"?

Lots of people complain of rigged markets but are scared shitless to actually compete, and blame their losses on others rather than themselves.

In reply to by Archibald Buttle

pawn Jan 2, 2018 9:20 PM Permalink

Tyler 2018 could b better got the Olympics in south korea hope the little fat fu+k don't do something stupid what the hay. G o T S N o W ice?

Cabreado Jan 2, 2018 9:20 PM Permalink

Per Design, there is a direct connection between the People and their Representative.

Also per Design, the collective body of Representatives (called Congress), is the most concise and powerful governing body in the history of civilization.

That the People refuse to Focus on a thoroughly corrupt and defunct Congress... per Design, the arrangement, and the idea, will not survive.

earleflorida Jan 2, 2018 9:21 PM Permalink

in the end, the failures are paid by the public.

in 1884 Lord Beaconfeld (P.M. Benjamin D`Israeli) cited 'Lionel Rothschild' as saying: "Can anything be more absurd than that a Nation should apply to an 'Individual[?]' to maintain its credit and, with its 'Existence' as a 'State', and its 'Comfort' as a 'People'" 

Clock Crasher Jan 2, 2018 9:30 PM Permalink

The Masters of the Universe (the banks) today only own a lot of bonds and real estate.  It's a good start but not enough.  

The whole point of 8 years of zirp is the eventual owning of even a lot more bonds and real estate and in this aftermath, stocks.  

In the end extended families will be living under the same apartment roof in a slum that is American megalopoli.  

JailBanksters Jan 2, 2018 9:47 PM Permalink

I feel pretty confident, there will NOT be a Financial Crisis in 2018.

there won't be a Nuclear War

the DOW will reach absurd levels of absurdness

Trump will live on for another year

and winters will become colder each year for at least the next 10 years.

JailBanksters peddling-fiction Jan 2, 2018 10:08 PM Permalink

As long as people still think the Trillion Dollar bill is worth a Trillion Dollars, then it's still worth a Trillion Dollars.

The US Dollar is like a Religion, you have to have faith in it's existence, otherwise it has no value what-so-ever.

But having said that....

Having a Trillion Dollar note in your hand, means somebody somewhere owes the Federal Reserve a Trillion Dollars. And would much rather the Debt be settled with an asset, like Property, Gold ...

The Bills "Represent" Debt not Wealth.

 

 

In reply to by peddling-fiction

Ophiuchus JailBanksters Jan 2, 2018 11:08 PM Permalink

As I’ve been saying ever since withdrawing from the con game in the year 2000, the moneychangers have quadrillions at their disposal and can do anything they want for as long as they want. Everyone thought I was nuts but time has shown my assertion to be correct.  

 

As I also said back in 2000, there’s only one way out………….

 

 

 

 

 

 

 

 

 

 

 

 

Human resources are obsolete............. 

In reply to by JailBanksters

black rifles a… Jan 2, 2018 10:31 PM Permalink

It is all around us.  I see it every day.  A lack of leadership in favor of bureaucracy and in favor of a lack of short term political liability and an abandonment of the innate desire to leave a legacy based on sound intentions no matter how flawed we may find them later in the review of history.  It is too easy to hide behind the status quo, the ego, convention, and the mountain of policies drafted by experts; not to mention the legalized payola.

sigmund-freud Jan 2, 2018 10:44 PM Permalink

nomi feels guilty cos she ripped off people while working for the banks for a very long time... jewish people always tricky... she also will get the revenge of time.

William Dorritt Jan 2, 2018 11:00 PM Permalink

Seize the offending financial institutions, zero out the equity, break them up, and  guarantee the deposits while you do it.

 

Mortgage knockdowns will be necessary to prevent mass dislocation, and to allow price discovery which has been delayed since 2006. Real Estate is currently 50% overvalued.

 

QED

MK ULTRA Alpha Jan 2, 2018 11:06 PM Permalink

Good easy to read financial analysis and future assessment. So raising rates too rapidly will flush the bond markets. This maybe what Greenspan was in such a state of panic when he warned of a bond market meltdown.

Trump isn't perfect, but he's all we have. The tax cut for middle class families was the first relieve in over 30 years. And most important, Trump is dealing with a train wreck which happened before he was at the helm. He's trying to fix problems with viable solutions which must go through a meat grinder of special interest. It is the typical myopia of the masses which prevents better solutions.

The other input, does the author suggest Clinton would have been a better choice? It would have been far worse than Trump. Naomi slants with leftist bias, however, without her political-ideological slant what she writes is good information about a quagmire left over from successive bouts of corruption from past administrations.

So far the choice of cabinet from past presidents, have been people who didn't know the first thing of what they were doing. At least, the Trump choices are more business like. However, Ross at Commerce did something which wasn't ideological in tune with our man Trump. In early negotiation with China, Ross ran a deal with the Chinese to import US beef, but the Chinese side demanded the same amount of Chinese chickens exported to the US. This is nuts when the Chinese enjoy a $400 billion annual trade surplus with the US and that trade surplus when added over a five year period will grow to a total of over $2 trillion. The US is being hollowed out and 200,000 Chinese intelligence agents are stealing US technology at an unprecedented rate. This is what Trump is up against.