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Can We Survive the Next Financial Crisis?

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Re: Can We Survive the Next Financial Crisis?

#191

Post by saltcured »

danhak wrote: post #100
travisoneill1 wrote: post #67

Earlier quoted context omitted.

This is backwards. Inflation destroys the value of debt. Poor tend to be borrowers and rich tend to be lenders, so inflation is an equalizer.

Most wealthy people borrow significantly even if they have high net worth (think mortgage on multi-million dollar home or investment property). Inflation helps them while they put their assets to work elsewhere. And it helps them far more than it helps some poor person with a few thousand in credit card debt.

Also, it is non-linear. The amount of reserve cash you need as an individual human approaches a limit much faster than total wealth, so the portion of your assets which must remain exposed to inflation grows smaller as a fraction of the whole. This is our western legacy of aristocrats and landed gentry in a nut shell.

Also, when you have lots of assets, you can assume that lines of credit are available whenever you might ask for them. You are less likely to tap into emergency reserves, and may also set a lower target for those reserves if you know they only need to address the most dire scenario where you might have to abandon some of your augmented lifestyle.

Finally, with large wealth you have an opportunity to diversify into many independent assets and firewall them from one another, e.g. with limited liability structures. Having one of your investments implode is qualitatively different from having your whole wealth implode. This is the entire premise of VC investment and I would have thought obvious to this audience...

Re: Can We Survive the Next Financial Crisis?

#192

Post by cm2187 »

The article dismissed bailin in a short sentence at the end when I think it is one of the most significant difference between 2007 and now.

Bail-in is the right given to the regulator to declare a bank non viable and to impose an instantaneous, extrajudicial, chapter-11. Basically writing down bond holders over the course of a week end, and possibly any unsecured, non deposit-guaranteed creditor of a bank, and in this way auto-recapitalising the bank. It has been used a few times in Europe already, though not on major institutions yet.

I am not aware that in the US only holdco debt is bail-inable, so I am not sure why the article infers that the tightening in borrowing cost between holdco and opco means investors don't believe in a bailin. I'd say that they rather don't believe in a bailin of the holdco only.

In the UK the regulator stated its approach of bailin-ing the holding company first before considering the operating company (bank), and you see a clear spread between the two, particularly initially as banks are starting to issue debt out of the holding company (and therefore a lot of bailin risk is concentrated on a small amount of debt).

Another important difference is that unlike 2007, a default risk of banks is priced in. The market has the capacity to absorb losses, in fact it is designed for that. The issue comes when losses occurs in places where they were not expected (money market funds, "AAA" MBS, bonds issued by major financial institutions, these were what cause the 2008 run on the banks). Then it gets really messy. But even now (in rather benign credit markets), bank credit spreads are still significant.

What worries me is not banks themselves, but sovereign debt and central bank capacity to react. We forget that as recently as 2011, investors were getting seriously worried of a country like Italy defaulting. Italy has now even more indebtedness, and a populist government that wouldn't think twice about making a radical action on its foreign debt. And other countries like France aren't that far behind, with a massive reliance on short term borrowing and no political willingness to control public deficits. Central banks on the other hands are still all-in on QE (at the current rhythm the Fed will have fully retired QE well after the next cycle kicks in), and with very low rates. So what levers are they going to use next?

And yeah if states collapse, the financial system under them will be wiped out.

Re: Can We Survive the Next Financial Crisis?

#193

Post by yardie »

jandrese wrote: post #115
crazynick4 wrote: post #104

Earlier quoted context omitted.

If you have an extreme health care incident, why pay the bill? Sure it would hurt your credit score not to, but if it's between that and tens/hundreds of thousands, I think it is worth it to take the hit for 7 years. I know health care workers who give this 'unofficial' advice to their patients and I've had friends and family members do the same thing - people who had no health insurance but still got health care and…

It's not just the 7 years on your credit score, it's having collection agencies hound you incessantly. It's having people constantly trying to scam your bank to drain your account. It is legal threats against you, your family, your friends, your employer, etc... You're basically dropping you bloody name to a pool of sharks who have little respect for what is legal or ethical.

> It is legal threats against you, your family, your friends, your employer, etc...

If any debt collector is brave enough to do any of this I'm documenting all of it and suing the everloving pants off of them. Because that is harassment.

Re: Can We Survive the Next Financial Crisis?

#194

Post by asdfasgasdgasdg »

cm2187 wrote: post #192

The article dismissed bailin in a short sentence at the end when I think it is one of the most significant difference between 2007 and now. Bail-in is the right given to the regulator to declare a bank non viable and to impose an instantaneous, extrajudicial, chapter-11. Basically writing down bond holders over the course of a week end, and possibly any unsecured, non deposit-guaranteed creditor of a bank, and in thi…

> And yeah if states collapse, the financial system under them will be wiped out.

That's not a thing that is foreseeable. Default? Perhaps. Collapse? Plenty of states have defaulted and not failed.

Re: Can We Survive the Next Financial Crisis?

#195

Post by PeterisP »

busterarm wrote: post #162
oihoaihsfoiahsf wrote: post #120

Earlier quoted context omitted.

Right. But I'd wager that index fund investors are more interested in profits than GDP, at least as it relates to their investments and the proposition at the top of this thread that index funds will be "ripped" (presumably disproportionately) in the next downturn.

Right. If you have a wide market downturn, all of the "active investors" are going to take their money out as cash and wait to buy and the "passive investors "are going to take a bath. The mistake that index fund adherents make is that there is no such thing as passive investing. Certain market participants have been screaming about this fact to anyone who will listen for 2+ years now.

First, it's literally impossible for all of the "active investors" to take their money out as cash; some active investors can cash out by selling all their stock to other active investors who think that this is a good time to buy more stock; passive investors would/could only absorb that amount of stock at the speed of new passive capital coming in, which is gradual, not that large (compared to the flows of active investors) and would likely slow down somewhat in a market downturn.

Furthermore, how exactly are "passive investors" going to take a bath? They're simply making a very long term bull market bet; if DJI drops 50%, it's the active investors that might sell at this price, but the index funds will just keep their position until (and after) it recovers, the only case where they'll lose in the long run is if the DJI drops permanently and that doesn't seem plausible outside of ww3 scenarios.

Re: Can We Survive the Next Financial Crisis?

#196

Post by cm2187 »

darawk wrote: post #160
djrogers wrote: post #97

Earlier quoted context omitted.

> basically. It doesn't cause amazon to rise in price. Yes, it does - you cannot add capital to a market without raising the market cap. It doesn't cause it to raise higher or faster than it's index peers, but it absolutely does cause it to rise.

It doesn't cause it to rise in price relative to others in the same index.

But these strategies do have all sorts of side effects on the market.

It pushes the correlation between stocks up. Investors might be more hot handed as their investment is more liquid, which may result in more selling in a dip. There are all sort of algorithmic strategies that are pro-cyclical. And also it reduces discrimination between stocks which results in weaker stocks benefiting from just being in the index and being overpriced.

Re: Can We Survive the Next Financial Crisis?

#197

Post by dc_gregory »

yardie wrote: post #193
jandrese wrote: post #115

Earlier quoted context omitted.

It's not just the 7 years on your credit score, it's having collection agencies hound you incessantly. It's having people constantly trying to scam your bank to drain your account. It is legal threats against you, your family, your friends, your employer, etc... You're basically dropping you bloody name to a pool of sharks who have little respect for what is legal or ethical.

> It is legal threats against you, your family, your friends, your employer, etc... If any debt collector is brave enough to do any of this I'm documenting all of it and suing the everloving pants off of them. Because that is harassment.

With what money?

Re: Can We Survive the Next Financial Crisis?

#198

Post by cm2187 »

asdfasgasdgasdg wrote: post #194
cm2187 wrote: post #192

The article dismissed bailin in a short sentence at the end when I think it is one of the most significant difference between 2007 and now. Bail-in is the right given to the regulator to declare a bank non viable and to impose an instantaneous, extrajudicial, chapter-11. Basically writing down bond holders over the course of a week end, and possibly any unsecured, non deposit-guaranteed creditor of a bank, and in thi…

> And yeah if states collapse, the financial system under them will be wiped out. That's not a thing that is foreseeable. Default? Perhaps. Collapse? Plenty of states have defaulted and not failed.

I mean collapses financially (default, hyper-inflation, etc). Then typically the local banking system sinks.

Re: Can We Survive the Next Financial Crisis?

#199

Post by adreamingsoul »

Just my opinion, but...

Our survival depends on local farms and businesses that are able to produce real value for people.

I define "real value" as resources having the ability to be bought, sold, and traded for other resources. For example, one hour of labor is worth X pounds of produce from a local farmer.

Our culture has too much of a dependence on global supply chains that will become increasingly expensive and scarce in the coming years.

So yeah, the next financial crises will be just the beginning. Add to it climate change, trade wars, unstable governments, and I start to see a troubling future that will affect us all in some way or another.

Re: Can We Survive the Next Financial Crisis?

#200

Post by nonbel »

castlecrasher2 wrote: post #183
nonbel wrote: post #171

Earlier quoted context omitted.

Nah, you just have to go elsewhere because the US healthcare system apparently includes a bunch of unnecessary or overpriced expenses. Or you just say you dont have insurance so you get charged at 10-50% the "chargemaster" price. Think about how cuba is able to have similar life expectancy, etc at a fraction of the cost with chronic shortages and subpar sanitation. Most likely there are many medical procedures doing…

> Think about how cuba is able to have similar life expectancy, etc at a fraction of the cost with chronic shortages and subpar sanitation. I suspect most of the US' problems is the atrocious lifestyle most live; overeating and under-exercising are literally a lethal combination.

Well the overeating is partially the healthcare industry's fault due to poor nutritional recommendations. People in general should not have grains as the main basis for their diet. This type of diet makes many people eat more than they otherwise would.

I would post a pubmed link but sorry, youll have to just try it yourself and read blogs because the medical researchers still haven't caught up to this. They are still calling a 30% carb diet "low carb".

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