The ongoing "Foot-IN-Mouth" disease of the mainstream financial experts continues. Over the past month, they repeatedly went on the record to say that the end of the global banking crisis was here. To wit:
- "Beyond stock movements, there is other evidence that the banking industry is back on its feet." (July 13 Forbes)
- "Banks are returning to profit. The assumption is banks have seen the worst of losses. Since they were the ones to lead us into this crisis, they will be the ones to lead us out." (July 31 Bloomberg)
- "Happy days are here again. The panic's over. Gloom is gone. We have emerged from the fleeting shadows on to the sunlit uplands of optimism once more." (July 30 AP)
Yet: on Friday August 14, 2009, Colonial Bank ($25 billion in assets) became the sixth largest bank failure in U.S. history. That brings the number of failed institutions in the U.S. to 77 in this year alone. And, according to an August 17 report, there are now more than 300 battered banks and thrifts on an "undisclosed" FDIC list of problem institutions.
In the words of one Wall Street Journal:
"When you get these failing banks, they're much more like a fresh-caught-fish than a fine wine. They don't get better with age."
Fact: Since the very start of the financial crisis, the talking heads have glided down a slope of unwavering hope. At so many fleeting lows, they called the absolute "end" to the rout -- only to report soon after that banking shares were falling even further.
To illustrate this, a colleague and I created the following close-up of the Philadelphia/KBW Bank Index since 2006, alongside some of the most blatantly misguide mainstream insights.
Here are the specific entries from chart:
- July 2006: Citigroup CEO Chuck Prince exclaims: "As long as the music is playing [in terms of liquidity], you've got to get up and dance. We're still dancing."
- July 2007: London Conference with the heads of world's largest investment banks assures: "Subprime implosion is a contained, isolated and temporary event with little risk of wider fallout."
- January 2008: Citigroup's Global Wealth Management calls for a "rebound in financials in 2008. With big banks, you're buying high-quality institutions at a fire sale." (Wall Street Journal)
- April 2008: Goldman Sachs chief executive predicts: "We're closer to the end than the beginning. I think we're getting to that point where people see the light at the end of the tunnel."
- November 2008: US Secretary Treasury says in a NPR interview: "I got to tell you. I think our major institutions have been stabilized."
- March 2009: "Bank executives express cautious optimism that the economic downturn is either at or near the bottom. A trough is finally in sight." (WSJ)
Contrary to popular belief, the alternative -- seeing the crisis unfold beforehand -- was quite possible. Here, Elliott Wave International's team of analysts provided a detailed forecast of the destabilization and deterioration of the U.S. banking sector. On this is the following archive of our publications:
September 2005 Elliott Wave Financial Forecast:
“Banks seem to be blind to the danger of overpriced collateral as they continue to stuff their balance sheets with mortgage-backed assets… Lenders are still behind the curve, but once they see the writing on the wall, the rug will get pulled out from under the economy in a hurry.”
The blindness continued, as the financial establishment invented ever-riskier ways for U.S. banks to bundle the $600 billion mortgage securities market. Then, in the rise up to the peak in the KBW index, the December 2006 Elliott Wave Financial wrote:
"The Philadelphia Bank Index is headed for something much more serious than a brief correction."
Finally, the January 2007 Elliott Wave Financial Forecast saw that the point of no return had been reached. “2007,” we wrote. This would be “The Year of the Financial Flameout.”