The Looming Bank Collapse

* businesses make things and sell them

* businesses take loans as a way to have a base of money to operate with, because the costs associated to make things have to be paid before the revenue from selling them comes in, and sales may be cyclical, etc

* businesses pay interest on those loans. (Hopefully this interest rate is significantly less than their profit margin.)

* the issuers of the loans- usually banks- sell the rights to the interest payments of those loans. Why? When a bank makes a loan, it is exposed to the risk of the business failing- if it fails, the loan principal and interest payments are lost. banks don't want this kind of "all or nothing" risk (more below).

* people who buy those rights package those interest payment rights into legal structures that combine interest payment rights from a lot of businesses together

* parts of those melded interest payment legal structures are then sold, often sold back to banks, because now the risk, instead of being "all or nothing" is "diversified".

The same thing happens with mortgages- banks that issue mortgages sell the mortgages and then buy into structures that package the payment rights from many, many mortgages.

For every given institution/bank, the move to sell the specific asset and buy the diversified asset makes sense.

At a systemic level, when everyone is doing this, it becomes systemically risky.

What's happening now, because of the systemic risk, entities that hold these "diversified" assets are themselves selling them to the central bank, which is then absorbing the systemic risk. This article doesn't mention that bank holdings of cash are at all time highs.

In principle, this does not amount to "printing money to stay afloat"- though many will say in practice it does. In principle, it amounts to shifting systemic risk around.

To get some perspective, the FED recently added almost three trillion dollars of "not QE" to the balance sheet, mostly because of COVID-19.

They'll be bailed out.

"But this time, the bailout proposal will likely face stiffer opposition, from both parties"

Doubtful. Everything can be blamed on the virus this time.

Only the US account receivable is taxes paid by taxpayers. So what happens is when the rich are in trouble they turn to the government and what the government does is says ok we will borrow against future taxes and just give it to you and typically those being bailed out are banks who turn around and take the taxpayers money and lend it back to the taxpayers. In short the taxpayers get screwed twice once being indebted to the government for future taxes and then again when they have to borrow their own debt from banks.

So imagine I’m your government and say look Bank needs money so I am going to give the bank $100 and you the taxpayers will have to pay that back. Bank gets the money and turns around and lends you $90 while keeping $10 as a fee earned and for lending you the $90 you will need to pay the bank back $100. You see now you need to pay $100 in future taxes to the government and $100 to the bank, so you are really out about $200 less the $90 loan.

No the Government borrows against future taxes (consider that an accounts receivable), the borrowed money doesn’t have value because of consensus it has value because it is backed by future tax revenue.

If the government did as you say and borrowed a trillion per taxpayer the system would breakdown but not because of some “consensus” but because the account receivable (future taxes) is insufficient to payback the borrowed money.

Instead lots of money handed over to banks to fix their books and toxic assets handed over to the .gov. Lots of people losing their homes and jobs, no one in the financial sector really seeing any jail time or penalty for their malfeasance. Much of the financial sector actually made off quite well during/after the crisis.

We're seeing it again with big businesses getting COVID bailouts, meanwhile politicians are wringing their hands that unemployment insurance benefits are "too high" and "main street" needs to get back to work. Make sure "main street" is held accountable and/or penalized, but it seems there are a lot of golden parachutes and soft landings for big business and the finance industries.