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The Looming Bank Collapse

theatlantic.com

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Re: The Looming Bank Collapse

#11

Post by thephyber »

kerkeslager wrote: post #5

> The federal government stepped in to rescue the other big banks and forestall a panic. The intervention worked—though its success did not seem assured at the time—and the system righted itself. Of course, many Americans suffered as a result of the crash, losing homes, jobs, and wealth. An already troubling gap between America’s haves and have-nots grew wider still. Yet by March 2009, the economy was on the upswing,…

This line struck me as odd:

> and the system righted itself

I suppose maybe it depends what "the system" refers to, exactly. If it's the same bankers who shape the financial system and the banks who all own part of the Federal Reserve which printed money to put price supports under their worst assets, then sure, "the system" "righted" "itself".

But in the end, there is no right or guarantee that every person will get a job, be able to keep a house, or will not lose wealth. And we should remember that about our future when reading this piece.

Re: The Looming Bank Collapse

#14

Post by thephyber »

nknealk wrote: post #6

> I have a checking account and a home mortgage with Wells Fargo; I decided to see how heavily invested my bank is in CLOs. I had to dig deep into the footnotes of the bank’s most recent annual report, all the way to page 144... The total is $29.7 billion. It is a massive number. And it is inside the bank. To put $29.7B that into context -- Table 4 of the most recent 10K says that Wells has ~1.7 trillion dollars of e…

Your appraisal seems fair... of the data you are working with.

But how many other financial instruments they own are tied up in CLOs on the books of other banks?

The whole point of The Big Short and Margin Call was that the banks aren't resilient, independent silos. When one bank shakes or falls, it can impact the neighboring bank which causes a domino effect. They all invest in slices of the things that the other banks invest in, they all do it with lots of leverage, and they all think they've hedged against the downside risk, but that still didn't prevent the 2008 collapse.

Re: The Looming Bank Collapse

#15

Post by candiodari »

danielovichdk wrote: post #8

From an outsider living a long way from USA, for many years now I haven't understood how the financial instruments of USA work. It constantly looks like the country is merely printing more money to stay afloat.

It's weird that people think that it's different anywhere else. In fact, the situation in the US is, if anything, less serious than elsewhere. Especially Europe.

The ECB had to bail out quite a few banks, and several states have done the same. Even now the ECB is preparing new bailouts for European banks:

https://www.brusselstimes.com/all-news/business/116135/europ...

And when even the ECB thinks banks have behaved so appalingly they deserve to die (trust me this takes quite a bit of really, really bad behavior), the individual countries:

https://www.france24.com/en/20081020-french-government-105-b...

Re: The Looming Bank Collapse

#16

Post by bostik »

Having just read both Liar's Poker and Barbarians at the Gates, the concept of CLOs sounds awfully familiar.

Loaning money to high-risk companies? Bundling a whole bunch of said loans into securities? High returns despite the risk of a significant fraction of defaults? Sounds like the world has been here before.

If this was a B-flick, it might well be called the return (or revenge) of the junk bond monster.

Re: The Looming Bank Collapse

#17

Post by Answerawake »

solatic wrote: post #3

It doesn't matter if the banks crash again if the Fed will just bail everybody out again and push stock market inflation even higher than it is now. It's clearly unsustainable, but the question is, how and why will the bubble burst? The author posits one option, of political intervention precluding another bailout. But the Federal Reserve is non-political precisely to shield it from attempted short-term political mac…

> But to where? And under which circumstances?

Can you give some guesses? I don't see any other place that would seem more attractive than the US. Every other place has its own problems whether it be lack of developed human capital, unstable government systems, etc. Maybe in the distant future if Mars transportation takes off that can be the next big thing?

Re: The Looming Bank Collapse

#18

Post by onion2k »

danielovichdk wrote: post #8

From an outsider living a long way from USA, for many years now I haven't understood how the financial instruments of USA work. It constantly looks like the country is merely printing more money to stay afloat.

for many years now I haven't understood how the financial instruments of USA work

That's deliberate. If they're too complex for most people to understand then they're very hard to scrutinize.

Re: The Looming Bank Collapse

#19

Post by yodon »

thephyber wrote: post #7

I've long read about the following still being a problem (post-2009): - CDOs (although a new generation of them have a new name/initialism) - Frank/Dodd was partially rolled back - The definition of bank size-classes was changed to reduce the regulatory burden over most regional banks that were previously more regulated - No significant adverse event happened after Standard & Poors was identified as having significan…

As a head's up a huge fraction of HN's readers read on mobile where code formatting like you used here makes posts unreadable.

Re: The Looming Bank Collapse

#20

Post by Diederich »

danielovichdk wrote: post #8

From an outsider living a long way from USA, for many years now I haven't understood how the financial instruments of USA work. It constantly looks like the country is merely printing more money to stay afloat.

US native here.

If I printed some $100USD bills, took them to the bank and tried to deposit them, they would have no value. The consensus is that you aren't allowed to print money.

The United States Government prints money all the time. This money has value because there is a world-wide consensus that it has value.

The simple fact is that there is and has been (for many decades) no safer place to park vast sums of money than with the United States Government.

There are limits, though it's not clear what they are. If the US Government printed 330 billion trillion dollars, and gave a trillion to each US citizen, then the consensus would be instantly broken.

The US Government printing 'a trillion here, a trillion there', at this moment in history, is not materially damaging the global consensus. This confidence is relatively easy to measure: when the US creates more debt, are there buyers? The answer is and has been for many decades 'absolutely yes'.

I'm not trivializing this borrowing, and I'm not vilifying it. It is a unique tool that should be used wisely.

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