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The Looming Bank Collapse

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Re: The Looming Bank Collapse

#41

Post by clairity »

mdorazio wrote: post #27
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…

Think you nailed it. The thing is, in order for capital flight to be a risk there needs to be somewhere else of comparable size and upside opportunity to the US that doesn't rhyme with "China" and it sure as hell isn't Europe. So we're back to square one in which absolutely massive sums of money are chasing returns with nowhere else to put money than the same places it already is. It's madness on a global scale.

i mean, globalism was always about helping capital find returms while hedging risk, under the guise of international trade being better for all than isolationism (but much better for capital than labor).

the core problem of hoarding wealth, as exhibited by the flight of capital to the US, is the inability of small groups of people to efficiently allocate capital, to have enough imagination and ingenuity to centrally-plan their allocations. it's literally anti-capitalist.

Re: The Looming Bank Collapse

#42

Post by burlesona »

mdorazio wrote: post #27
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…

Think you nailed it. The thing is, in order for capital flight to be a risk there needs to be somewhere else of comparable size and upside opportunity to the US that doesn't rhyme with "China" and it sure as hell isn't Europe. So we're back to square one in which absolutely massive sums of money are chasing returns with nowhere else to put money than the same places it already is. It's madness on a global scale.

This is the insanity of zero interest rate policy. It’s so hard for me to understand why the economists and fed officials don’t see this.

Re: The Looming Bank Collapse

#43

Post by clairity »

thephyber wrote: post #14
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 ba…

that's literally herding behavior, which is the loss of independence among market participants, so that risks start to align, rather than cancel each other out.

it's disgusting that we haven't learned anything from 2008.

Re: The Looming Bank Collapse

#44

Post by chishaku »

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…

That's not the correct context. What does that $29.7 billion represent in counterparty or systematic risk?

Re: The Looming Bank Collapse

#45

Post by mycl »

dia80 wrote: post #34

Meh, 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…

It says this:

> We already know that a significant majority of the loans in CLOs have weak covenants that offer investors only minimal legal protection; in industry parlance, they are “cov lite.” The holders of leveraged loans will thus be fortunate to get pennies on the dollar as companies default—nothing close to the 70 cents that has been standard in the past.

Re: The Looming Bank Collapse

#46

Post by Diederich »

throwaway_jobs wrote: post #28
Diederich wrote: post #20

Earlier 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…

The current US federal debt is roughly 110% of GDP. In a few weeks, I'm going to borrow about 350% of my yearly income in the form of a home loan. I'm currently paying about 30% of my pre-tax income on rent, and this future mortgage will be about 22% of my pre-tax income, so on that basis alone it makes a lot of sense.

Less than 10% of the total federal budget goes into debt payments.

The absolute numbers don't really matter, but the percentages do. Trends also matter, as long as they're considered carefully.

Re: The Looming Bank Collapse

#47

Post by inetknght »

catsdanxe wrote: post #40
jfengel wrote: post #37

Earlier quoted context omitted.

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?

Those seem like something someone with wealth might want to do. But for those without wealth... protests are pretty much the top of the short list of options they can take.

Re: The Looming Bank Collapse

#48

Post by atemerev »

catsdanxe wrote: post #40
jfengel wrote: post #37

Earlier quoted context omitted.

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?

Brace for impact. If and when the shit hits the fan, there will be no strategy _at all_ to keep the same economic levels. Everybody will suffer.

Re: The Looming Bank Collapse

#49

Post by throwaway_jobs »

jfengel wrote: post #37
throwaway_jobs wrote: post #28

Earlier 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…

It’s never getting paid back, there is so much number fudging to hide the reality of debt and guaranteed payments for future liabilities...we pretend we are $26T in debt (but when you add in the future liabilities We are over $148T in debt).

To your point being rational doesn’t really give insights into these issues, but talk to any government budget officer and the can give you a sobering reality of the situation.

Re: The Looming Bank Collapse

#50

Post by Diederich »

grey-area wrote: post #38
Diederich wrote: post #20

Earlier 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…

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...

Foreign governments bought about 1/3 of the debt issued by the US government in 2019.
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