In just two days – September 15 – it will be the 10-year anniversary of Lehman Brothers collapse. The date they filed bankruptcy.
With nearly $620 billion in debts, it was the largest bankruptcy in history.
Now, a decade late – it appears the mainstream’s learned nothing. And many have forgotten the crisis that was 2008. . .
The banks are bigger and the damage of them crashing will be even greater this time around.
The elites – led by the Federal Reserve – have since 2008 told banks to continue lending and for consumers to continue borrowing. They did this by cranking interest rates down to zero (technically 0.25%). This allowed funds and ‘shadow banks’ to borrow huge amounts on margin.
It also kept commercial banks continually lending out loans. And at the end of the day if they lent out too much and didn’t have enough legal ‘reserves’ (deposits) to close, they’d simply ring up another bank (or the Fed) and borrow the amount needed.
“Hey BofA, we need $26 million.”
“Okay Citi, sounds good.”
Borrowing at near zero and lending out at higher rates was very lucrative. And basically, free money.
Banks can ultimately borrow from the Fed for 0.25% and lend out to the U.S. government for a solid 2-3% nominal return. Or even better, they’ll lend out to consumers who want a new house at a higher interest rate. Students that need debt for college. Auto loans. Or Emerging economies that need funding.
There’s more to it – and I’ll highlight it more in-depth in later articles. But aslong as interest rates are low, the game continues.
But the problem is – and just like before 2008 kicked off – short term interest rates are now rising.
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