Reasons the banking crisis isn’t a repeat of 2008

JPMorganChase bought Bear Stearns for $2 a share in 2008, but this is entirely unlike UBS acquiring Credit Suisse this past week?

https://www.nytimes.com/2008/03/17/business/17bear.html

Credit Suisse shareholders were paid in shares of UBS, in a major value writedown, quite comparable to the JPMChase deal for Bear. Certain select shareholders (Saudi Arabia and Qatar) seem to have been protected while others (AT1 bondholders) were not.

Patrick Boyle's YT channel is doing a great job on this, first became aware of it during the SBF spectacle, just as good now:

https://youtu.be/hV0gpO1B6tU

> "UBS was clear from the very start that they would only participate in the deal if it was cheaply priced and if UBS could be indemnified from any of the legal issues that Credit Suisse was potentially facing... 'This is no bailout', the Swiss finance minister said, 'This is a commercial solution'"

So the difference is what, it's more globalized this time around? Note that indemnity provision was likely informed by fallout from the JPMChase deal for Bear, see this 2013 Reuters Blurb:

> "New York state’s lawsuit against JPMorgan Chase & Co. alleging fraud in mortgage-backed securities sold by Bear Stearns may be one of the broadest cases to come out of the financial crisis..."

It seems quite familiar. Investment capitalism goes belly up once again due to short-sighted greed and a lack of regulation, and the government steps in to cover the losses for the fearless risk-taking entrepreneur class (who have bought most of the politicians) in what certainly looks like an 'entitlement program'... while libertarians everywhere remain curiously silent. Con artist much?

Social safety nets for the billionaire investors are needed to prevent societal collapse, it seems. But who cares about all the homeless encampments, they should have learned how to program... it's their own fault, and people need to take responsibility for their actions...

If money is a fiction, and if successful companies create money, then successful companies create fictional currency and assets. So crypto being successful and creating money is just as bad as a successful company like Facebook or Google. Because money is fictional and therefore useless. And it's okay to accumulate a useless asset like money? Strange. Is there another game we can play? One that exits from this bad capitalism? Because chasing after money, a fake and useless asset, is not good.

> Reich and Elizabeth Warren disagree with you

They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense.

As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees.

> securities firms selling CDOs backed by subprime MBS

Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall.

Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.

It feels like all the content here is subtext... so I guess I get to do Philology. These are the given reasons:

| this probably isn’t 2008, for three key reasons:

(1)Policymakers have tools to solve banking crises, (1.5) and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller |

His take on reason #1 is that MMT has won. Monetarism is over now. Dollars in the bank are dollars in the Fed and these are infinite. They're still pretending in the rhetorical, political and legal sense... but the policies are not that anymore. The Fed can, if it wants, increase rates but as it does it will fully back banks.

Banks are no longer limited by the value of securities on their books. This is now known not to cause hyperinflation, and regular inflation is either tolerable or someone else's job.

reason #2 - For Non-banks like a company with a loan or a human with a mortgage, "Monetarism is dead" means nothing. They're affected by rate increases and can run out of money and get wiped out. Luckily, debt is not super high like it was in 2008.

He charts household debt, but I think the bigger "story" is company debt. Google, Amazon, even Tesla are all about equity. They're don't care about interest rates.

Reason # 3 needs no commentary: "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis. This episode has been driven by price declines in high-quality assets with pristine disclosure leading to a liquidity issue."

I think the biggest difference in how we're approaching this is around the "value creation" aspect. I was being intentionally short-term-focused, but I don't think I made that clear.

I agree completely about the valuation of circulation, I think I was just getting at it differently when talking about creating a sucessful company "creating money." Thinking about consumer behavior of the founder, investors, and any other employees of that company. They're gonna spend their "actual dollars" much more freely because they have that new asset of ownership of the company in their back pocket. Which increases circulation, taxable receipts, etc etc.

Value is ultimately necessary, yeah, I think that's what you're getting about re: the consumption sphere. Because I believe that most companies produce more real value than crypto, say, I do think real companies are a much better long-term way to go since sooner or later people will notice that gap and start selling their stakes in things not actually bringing in real revenue in exchange for real value with corresponding bad effects on consumption. A company and a crypto token can both give a bunch of early parties a bunch of "new spending power" overnight - but for long-term health, you need something that will continue to reward the next several generations of investors, vs just a greater fool scam.