Is the Next Banking Crisis Around the Corner?

Steve Sherman
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Posted: Sep 28, 2017 12:01 AM
Is the Next Banking Crisis Around the Corner?

Our economy relies on a functioning banking system. Right now, the banking system is stable, yet the economy-wide meltdown of 2008 is never far from our collective minds. It would only take one large bank to fail to send the fragile U.S. economy into a tailspin.

Don’t expect federal regulators to be any help. They have become progressive activists and tend to regulate activities that have little to do with the cause of the 2008 crisis.   

One other contributing factor is a debt crisis that is exploding quicker than anything from North Korea. Our nation owes $20 trillion in debt right now. When one looks at the crisis in front of our eyes right now, a bankrupt Puerto Rico in dire need of economic aid to respond to the devastation in the wake of Hurricane Maria, one can see a number of factors that could tank the U.S. economy very soon.

There is one bank right now that is under the microscope for potential risky activity. The Bank of NY/Mellon has been accused of abusing client assets. The accusation, that has led to a lawsuit, is that the Bank of New York Mellon paid out tens of millions in cash that was not due to investors. According to USA Today, this same bank was fined $183 million in 2015 by Britain’s financial regulator for breaking rules to keep client assets safe from the insolvency of the bank. This is only one bank, but ever played dominoes? One bank’s failure could cause other banks to also experience some trouble.

Federal regulators seem not to care about allegations of abuse of client assets. They are more worried about making headlines and shutting down legitimate businesses who help the economy. 

Obama holdover government regulators, aka “Swamp Things,” are proving to be a big problem for markets. The overbearing regulations passed as part of President Obama’s Dodd-Frank law have empowered liberal bureaucrats. That law was advertised as a solution to future risky activities in the banking sector and on Wall Street, yet the regulators in charge of implementing the law seem more concerned with advancing progressive agenda items. 

The best example of progressive government regulators abusing authority are the activities of the misnamed Consumer Financial Protection Bureau (CFPB) run by Obama appointee Richard Cordray. Cordray has pushed regulations intended to chill the small dollar loan market in a way that hurts middle-income and poor Americans while he has attacked other legitimate business enterprises. When you have banks who are living on the edge, and regulators who care more about becoming progressive heroes than fixing problems, you have a recipe for disaster. 

Don’t forget the Puerto Rico debt crisis that has rocked Wall Street and has just become far worse with the damage from the hurricane devastating the island. Bloomberg reported on September 21, 2017 “the financial situation was dire before Maria hit. The island’s economy has been contracting for a decade, sending a stream of residents to find work on the U.S. mainland. As Puerto Rico faces catastrophic damage, it must restore the health and safety of its citizens while navigating the bankruptcy process to help it reduce a $74 billion debt load and a broke pension system.” 

With the hurricane devastation and a massive out-migration from the island to the mainland of the United States, Puerto Rico is going to continue not to pay debt. That fact will rock Wall Street and further destabilize the markets.

Between banks that are engaging in sketchy activities, progressive activists in government and the Puerto Rican debt crisis, there is a potential economic disaster looming. Although the Trump economy has been booming, recent events show that the boom could turn to bust in a short period of time. Just as the series of hurricanes have devastated Houston, Florida and Puerto Rico, a hurricane of bad banks, unethical regulators and a mountain of debt could be the perfect storm that sends Wall Street into another 2008 like crisis.