Check Out Chris Whalen's Terrifying Presentation On The 2011 Foreclosure Crisis


The biggest bear in foreclosure-gate is Institutional Risk Analytic’s Chris Whalen.

At a conference Wednesday, Whalen said the foreclosure crisis would make 2008 look like a cakewalk (via Prag Cap):

The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ΒΌ of the way through the foreclosure process.”

Whalen says subprime losses never really showed up on balance sheets. But a coming wave of foreclosures will make them a reality. At a time when banks are already stressed, these rising operational costs will cause bankruptcy.

Even without foreclosure-gate banks were screwed. As the government stalls the clear out of toxic assets, bank liabilities will rise even more.

Subprime losses have been hidden by bad accounting

Stress on the financial system has been kept back with stopgap measures

Efficiency ratios (the cost of generating revenue) spikes after recessions... but the trendline had already reached dangerous highs

Net interest income seems high, but this is only because of the Fed's zero interest rate policy

If zero interest rate policy continues, bank interest income (thus cash flow) will fall to inadequate levels

But the real red flag is in non-interest income, which peaked during the subprime frenzy -- and has not yet bottomed

Non-interest expenses will soar as foreclosures accelerate. Non-interest income will fall as the economy stalls

With trouble ahead, banks are pulling in credit to protect themselves

Need any more proof banks aren't lending?

Big banks are already losing control of the foreclosure wave -- which may knock out as many as 1 in 5 mortgages

Many large banks will be shattered. They will survive only through further nationalization

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