The Coming Financial Crisis

The Coming Financial Crisis

Yes Indeed, Another Crash Is Coming, Says Al Lewis

March 30, 2014 / http://www.wsj.com/articles/SB10001424052702303325204579465610191507216

I've been predicting the next financial crash ever since the last one.

It isn't easy flapping my wings like Chicken Little while the stock market races to new highs and economists drone on about a recovery, but history is on my side.

I have witnessed the 1980s savings-and-loan crisis, the 1987 stock-market crash, the 1997 Asian financial crisis, and the 1998 collapse of a hedge fund called Long-Term Capital Management that had to be bailed out before it took down the global economy.

Then came the 2000 dot-com bust. Then, the 2008 financial crisis and the muck our economy has been stuck in ever since.

Every crisis is different in detail, but the cause is always some variation of the same game: High rollers amass debt until they can't pay it off, and then they default, setting off a string of insolvencies that can be stopped only by putting taxpayers at risk.

Systemic fraud is exposed in every crash, but little is done about it. Big business, big government and big bankers are too often from the same self-dealing clan. The most culpable among them will claim no one could have possibly seen the big crash coming, even though plenty of warnings went unheeded.

Economists working for the looting class often compare the economy to the weather. They claim that unavoidable cycles cause crashes, as if the economy were a natural phenomenon, existing apart from humanity. But humans create economies, and humans cause financial disasters.

Financial crimes are tolerated in the name of free-market capitalism and the comforting pretension that another economic crash could never happen again.

Make no mistake, though. The next crash will fall like the recent landslide in Washington state, where a 1999 U.S. Army Corps of Engineers study warned of the risks of a "large catastrophic failure." And then it happened.

In the next crash, when you hear someone claiming that it wasn't foreseeable, remember a new book by award-winning financial reporter Bob Ivry: "The Seven Sins of Wall Street: Big Banks, Their Washington Lackeys, and the Next Financial Crisis."

In it, he details the many financial crimes that have occurred not before but after the 2008 financial crisis.

He writes about too-big-to-fail banks only becoming larger. He writes about private-equity firms buying up foreclosed homes, turning them into rentals and then issuing bonds on the revenue streams—schemes that sound like 2004 all over again. He writes about wrongful foreclosures and the economic squeeze on ordinary Americans.

Mr. Ivry claims this is all quite deliberate: "We called it a financial crisis, but what happened in 2008 was really a leveraged buyout of the United States."

He claims things have only gotten worse. The nation is now more in debt, and its people are now more impoverished, making America more vulnerable to the next big crash.

"Predatory greed," Mr. Ivry writes, has been "weaponized for the war fought by the rich against the poor and middle class." It has America "pointed toward the second avoidable economic cataclysm of the baby boom era."

Mr. Ivry leads off his tale with a 2010 quote from J.P. Morgan Chase Chief Executive Jamie Dimon : "My daughter called me from school one day and said, 'Dad, what's a financial crisis?' And without trying to be funny, I said, 'It's something that happens every five to seven years.' "

By Mr. Dimon's count, we are about due.