America can afford to prop it up for as long as the dollar is in demand for international trade, and she will use her naval superiority to make sure of that
The Looming Bank Collapse
31–40 of 135 posts
Re: The Looming Bank Collapse
#32I'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…
It's not a bubble, it's price inflation. Assets are fairly priced with a looming collapse of the dollar value in mind.
Re: The Looming Bank Collapse
#33Having 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.
This sounds entirely the same and this time the industry probably thought they were so clever because companies are likely still less risky than individual consumers and then oops Corona!
Re: The Looming Bank Collapse
#34Meh, the article doesn't mention recovery rates. If a loan defaults it's not usual you are getting 0 back. Typically 30-40% is the assumed rate. That means if all the loans default then the top 30% of tranches shouldn't take a loss.
So now consider, most of the underlying loans have to default and the recovery rate has to be below battle tested assumptions before the top tiers get risky. This is very very unlikely to happen given the Fed and the US Govt. have done so much and are committed to do more to stave off a severe depression / recession. It's more like people were killing it buying the safer parts at distressed prices as over leveraged funds shed them on the back of margin calls in March.
Re: The Looming Bank Collapse
#35Earlier quoted context omitted.
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 mo…
> The United States Government prints money all the time. This money has value because there is a world-wide consensus that it has value. 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 syste…
For most countries, this is true. The US is in a unique position because it is the global currency.
Re: The Looming Bank Collapse
#36Earlier quoted context omitted.
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 mo…
> The United States Government prints money all the time. This money has value because there is a world-wide consensus that it has value. 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 syste…
Government budgets are not the same as corporate budgets.
Re: The Looming Bank Collapse
#37Earlier quoted context omitted.
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 mo…
> The United States Government prints money all the time. This money has value because there is a world-wide consensus that it has value. 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 syste…
It is rather astonishing that rational people continue to believe that there is enough future tax revenue to justify this. It's entering dotcom-boom territory, where even the most optimistic future profitability can't justify this level of backing.
Part of it, I imagine, is that the US government is likely to benefit from future tech booms, as it has in the past (despite tax shenanigans from the tech companies themselves). It gets a piece of stock market profits -- a stock market whose own levels are also currently out of keeping with rational revenue expectation.
Re: The Looming Bank Collapse
#38From 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 mo…
You should also bear in mind that governments now buy more and more of their own debt (indirectly of course), so how much of that demand is real?
https://www.thebalance.com/who-owns-the-u-s-national-debt-33...
Re: The Looming Bank Collapse
#39From 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.
They aren't actually complex at all. People in finance like to jargon up the work they do.
Back in '08 we heard about how "complex" CDS are. There is nothing complex about a CDS.
Whenever something bad happens in the financial sector, there is always a simple story behind it. Usually a combination of fraud and leverage.
Re: The Looming Bank Collapse
#40Earlier quoted context omitted.
> The United States Government prints money all the time. This money has value because there is a world-wide consensus that it has value. 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 syste…
It is rather astonishing that rational people continue to believe that there is enough future tax revenue to justify this. It's entering dotcom-boom territory, where even the most optimistic future profitability can't justify this level of backing. Part of it, I imagine, is that the US government is likely to benefit from future tech booms, as it has in the past (despite tax shenanigans from the tech companies themse…
So what would a rational person do? Stockpile guns and food? Invest in gold?