New Money Morning Report: U.S. Banks Setting Up New Financial Crisis

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The largest U.S. banks are using customer money to secretly build their profits “off book”. But their latest hidden banking trick could end in a financial crisis even worse than 2008, says a new report by Money Morning’s Keith Fitz-Gerald.

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What makes this so disgusting is that it's the money of regular Americans that's at stake, says Keith.

According to a report from Money Morning’s Keith Fitz-Gerald, the biggest U.S. banks are setting the world up for a new financial crisis.

This crisis will be bigger and more powerful than the 2008 crash. It could take down businesses as lending disappears and drive unemployment well above 10%. And just like last time, the banks at fault won’t be held accountable because what they’re doing to cause this new crisis is perfectly legal, says Keith.

After playing with derivatives, subprime lending and credit default swaps, the current banking boom is a backroom practice called “rehypothecation”. This process accounted for more than half of the total activity in the “shadow” banking system in 2007, according to the International Monetary Fund. And anywhere from $5 trillion to $10 trillion in global funds could be tied up in rehypothecation at any given moment, says Keith.

Wall Street would have the public believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But Keith says that’s not the case.

Wall Street, Keith explains, is addicted to leverage and, when given the opportunity to self-police, has rarely, if ever, taken actions that would threaten profits.

Rehypothecation is one of the main reasons why Europe is in such deep trouble and why the top U.S. banks will get hammered if the European Union (EU) goes down, according to Keith.

And what makes this so disgusting is that it's the money of regular Americans that's at stake, says Keith. Regulators like the Securities and Exchange Commission (SEC) and their overseas equivalents are not only letting the top U.S. banks get away with this. They’ve also made it an integral part of the present banking system. And central bankers condone it.

As one might expect, the concept behind this malfeasance is complicated. But it's key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond, according to Keith.

Most people have never heard the term rehypothecation. But they can learn exactly how it works – and why the major banks using it could cause a new, more terrifying, financial crisis (with the money of regular Americans) – in a new Money Morning report by Keith Fitz-Gerald.

Money provides valuable investment research and analysis to its more than 550,000 readers everyday. Martin Hutchinson is one of many market and industry experts who offer unique insights on new investment trends and little-known companies and industries, while showing readers the truth behind today’s biggest news stories.


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