That’s the question raised in an important article at EconoMonitor, and the answer given is yes, they probably are.
Now you might think such a conclusion is the raving of a fringe conspiracist, but you’d be wrong. It’s the opinion of L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College.
Here’s a sample of his reasoning:
Financial institutions are still heavily indebted—mostly to one another. At the level of the economy as a whole, it is still a massive Ponzi scheme—that will collapse. Total US debt loads are much higher than the loads across most of Euroland—we make Greece or Italy look like paragons of thrift. Especially if you take government debt out of the equation (which you should do when talking about the US—since we’ve got a sovereign government that issues its own currency), the Europeans are debt pikers.
Most of the household debt is linked to real estate—almost three-quarters. 10.9 million homeowners, or 22%, are underwater on their mortgages. 1.6 million are delinquent or in foreclosure processes. Banks still have $700 billion in second lien debt (such as home equity loans). As these are “sloppy seconds”, much of this stuff is worthless. American consumers account for nearly half of the global $9 trillion of securitized loans (ie, mortgage backed securities and so on). There is another $4.1 trillion in mortgage debt sold by Fannie and Freddie. The point is that there is still a phenomenal amount of debt linked to a declining US real estate market, and much of that is either directly held by US financial institutions, or will come back to bite them because of extensive layering of debt across the global financial system. And speaking of these linkages, US banks will have to refinance over $300 billion of maturing debt this year.
We urge you to read the rest. It’s a disturbing foreshadowing of what lies ahead.