The Looming Bank Collapse
theatlantic.com
The Looming Bank Collapse
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Re: The Looming Bank Collapse
#2> I ran my finger across the page to see the total for these investments, investments that Powell and Mnuchin have asserted are “outside the banking system.”
> The total is $29.7 billion. It is a massive number. And it is inside the bank.
What percentage of Wells Fargo's assets is that? It looks they they've 1.9 trillion in assets, so even they were worth nothing, would it have a material impact?
Re: The Looming Bank Collapse
#3It 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 machinations. Congress will complain to the cameras and the Fed will go right back to "rescuing" the market.
No, the bottom will only well and truly drop out when there's significant capital flight - when the dearth of real investment opportunities relative to currency glut becomes so acute that capital leaves American borders in search of real return. But to where? And under which circumstances?
Re: The Looming Bank Collapse
#4Buried lede warning.
>But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic.
(10 paragraphs later)
>I ran my finger across the page to see the total for these investments, investments that Powell and Mnuchin have asserted are “outside the banking system.”
The total is $29.7 billion. It is a massive number. And it is inside the bank.
Re: The Looming Bank Collapse
#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, and the longest bull market in history had begun.
This paragraph is conceding a point that should not be conceded. The system did not right itself if many Americans lost homes, jobs, and wealth. 12 years later, not everyone has recovered from the 2008 collapse.
Re: The Looming Bank Collapse
#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 earning assets. Tables 1 & 2 indicate they hold around 180B of shareholder capital buffer.
Re: The Looming Bank Collapse
#7I'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 significantly inaccurate ratings on CDO / mortgage bond
- moral hazard all over the financial sector, multiplied by large QE rounds
- shadow inventory of housing (not sure if this was sold off or if banks still hold lots of houses off the market)
- lots of private unicorns have opted not to try to go IPO, despite Wall Street records over the past few years
(edit: I converted the indented list to individual paragraphs)
But given these assumptions, are the US financial markets really that healthy? It still feels like we have a few asset bubbles, especially in the assets which QE propped up.
Re: The Looming Bank Collapse
#8From 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.
Re: The Looming Bank Collapse
#9> I ran my finger across the page to see the total for these investments, investments that Powell and Mnuchin have asserted are “outside the banking system.” > The total is $29.7 billion. It is a massive number. And it is inside the bank. What percentage of Wells Fargo's assets is that? It looks they they've 1.9 trillion in assets, so even they were worth nothing, would it have a material impact?
> The banks themselves may reveal that their CLO investments are larger than was previously understood. In fact, we’re already seeing this happen. On May 5, Wells Fargo disclosed $7.7 billion worth of CLOs in a different corner of its balance sheet than the $29.7 billion I’d found in its annual report.
There might be more?
Re: The Looming Bank Collapse
#10> 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,…
What criteria should someone use to judge 'righted itself'? No event can ever be completely undone, merely compensated for. Many of the people who lost homes should never have bought them leading up to '08 - they only were able to because of unrealistic (and sometimes predatory) underwriting standards and financing that NEVER would have worked out, and blew up shortly thereafter once the people bankrolling it figured out what was going on.
The overall economy recovered, but of course it looked a bit different. It was 4-5 years later.