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“We’ve got strong financial institutions…Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.” – Henry Paulson – 3/16/08

“I have full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event. Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again.” – Janet Yellen – 3/12/23

With the recent implosion of Silicon Valley Bank and Signature Bank, the largest bank failures since 2008, I had an overwhelming feeling of deja vu. I wrote the article Is the U.S. Banking System Safe on August 3, 2008 for the Seeking Alpha website, one month before the collapse of the global financial system. It was this article, among others, that caught the attention of documentary filmmaker Steve Bannon and convinced him he needed my perspective on the financial crisis for his film Generation Zero. Of course he was pretty unknown in 2009 (not so much anymore) , and I continue to be unknown in 2023.

The quotes above by the lying deceitful Wall Street controlled Treasury Secretaries are exactly 15 years apart, but are exactly the same. Their sole job is to keep the confidence game going and to protect their real constituents – the Wall Street bankers. And just as they did fifteen years ago, the powers that be once again used taxpayer funds to bailout reckless bankers. Two hours before the only solution the Feds know – print money and shovel it to the bankers – Michael Burry explained exactly what was about to happen.

…click on the above link to read the rest…

Pozsar Warns Of Another “Lehman Weekend” As Russia Sanctions May Trigger Central Bank Liquidity Flood

February 27, 2022

Pozsar Warns Of Another “Lehman Weekend” As Russia Sanctions May Trigger Central Bank Liquidity Flood

In a remarkable show of force and unity, western powers cast aside all their previous concerns about Russian energy supplies and uniliaterally announced the nuclear option of imposing sanctions on the Russian central bank coupled with targeted exclusions from SWIFT of key Russian banks.

*EU APPROVES BANNING ALL TRANSACTIONS WITH RUSSIAN CENTRAL BANK

The move has sparked a bank run in Russia, as locals scramble to pull out whatever hard currency they can get their hands on before it runs out, and is certain to trigger chaotic moves in FX and commodities when markets reopen in a few hours. Already some Russian banks are offering to exchange rubles for dollars at a rate of 171 rubles per dollar on Sunday, compared to the official closing price of 83 on Friday before the European/US announcement about targeting the Russian central bank. In other words we are looking at a 50%+ devaluation of the Ruble. Additionally, widespread announcements of divestments in Russian equities by the likes of BP pls and the Norwegian sovereign wealth fund mean that the Russian market will be a bloodbath on Monday.

As Bloomberg notes, commodities are heading for a manic start to the week as investors scramble to assess how the West’s latest sanctions on Russia will affect flows of energy, metals and crops.

The coming days are fraught with event risk for crude, even aside from the sanctions fallout. There’s a midweek meeting of OPEC+ on output; the Biden administration may tap stockpiles; and Iranian nuclear talks look to be nearing a conclusion. On top of that, American crude inventories at the key Cushing hubcould sink to the lowest since 2014 if there’s another modest draw.

…click on the above link to read the rest of the article…

Albert Edwards: “It’s Starting To Feel A Bit Like July 2008”

October 8, 2021

Albert Edwards: “It’s Starting To Feel A Bit Like July 2008”

One of the theories seeking to explain the Lehman collapse and the ensuing financial crisis points to the record surge in oil prices which rose as high as $150 in the summer of 2008, and which combined with tight monetary conditions, precipitated a giant dollar margin call which in turn pricked the housing bubble with catastrophic consequences. In his latest note, SocGen’s resident permabear draws on that analogy and writes that “as energy prices surge with a backdrop of central bank tightening it’s starting to feel a bit like July 2008″ referring to that moment of “unparalleled central bank madness as the ECB raised rates just as oil prices hit $150 and the recession arrived.”

Is today any different?

Pointing to the recent surge in global energy prices (described in detail in Gasflation), Edwards writes that “the current high energy prices will hugely impact the debate about whether the post-pandemic surge in inflation is transitory or permanent.” And while we wait for the Fed (and to a much lesser extent the ECB) to commence tapering as neither will be willing to admit they were wrong about “transitory” being permanent, financial conditions are already sharply tighter with breakeven inflation rates (a proxy for market inflation expectations) surging, especially in Europe, and especially in the UK where the Retail Price Index points to 7% inflation as soon as April.

While market are perhaps hoping that central banks will reverse their path similar to what, the Fed did in Dec 2018, a toxic price/wage spiral has already taken hold as “ultra-tight labor markets conspire with households being bludgeoned by higher energy prices and the cost of living generally.”

…click on the above link to read the rest of the article…

Meanwhile In China, Echoes Of Lehman As Interbank Market Freezes

June 19, 2019

Meanwhile In China, Echoes Of Lehman As Interbank Market Freezes

One month ago we wrote that in the aftermath of the shocking government May 24 seizure of Baoshang Bank – not shocking because the bank failed as most Chinese banks are insolvent if left to their own devices due to the real, and far higher levels of non-performing loans, but because the government allowed it to happen in the open, sparking fears of who comes next (and when) – the PBOC “finally panicked and injected a whopping net 250 billion yuan ($36 billion) into the financial system via open-market operations, as it fills what traders have dubbed a growing funding gap following the Baoshang failure.”

In retrospect, the PBOC failed to restore confidence in the stability of the Chinese banking system, and since then things have taken a turn for the far worse.

Yet with the world fixated on the U.S.-China (Mexico, Europe, etc) trade conflict, it is easy to understand why many have brushed aside the Baoshang harbinger and its consequences which have exposed giant fissures under China’s calm financial facade and are gradually freezing up the Chinese banking system.

As the WSJ writes, on Sunday, China’s securities regulator convened a meeting asking big brokerages and funds to support their smaller peers, according to a meeting summary circulated among industry participants Monday. The briefing cited rising risk aversion in money markets after defaults in the bond repurchase market.

The immediate reaction, which we pointed out back in May, is that some of the key interbank lending rates – those which banks rely on to obtain critical short-term funds – have moved sharply higher in recent weeks, with the 1 month repo soaring, and almost doubling over the past month.

…click on the above link to read the rest of the article…

Stock-Market Margin Debt Plunges Most Since Lehman Moment

November 22, 2018

Stock-Market Margin Debt Plunges Most Since Lehman Moment

It gets serious. Margin calls?

No one knows what the total leverage in the stock market is. But we know it’s huge and has surged in past years, based on the limited data we have, and from reports by various brokers about their “securities-based loans” (SBLs), and from individual fiascos when, for example, a $1.6 billion SBL to just one guy blows up. There are many ways to use leverage to fund stock holdings, including credit card loans, HELOCs, loans at the institutional level, loans by companies to its executives to buy the company’s shares, or the super-hot category of SBLs, where brokers lend to their clients. None of them are reported on an overall basis.

The only form of stock market leverage that is reported monthly is “margin debt” – the amount individual and institutional investors borrow from their brokers against their portfolios. Margin debt is subject to well-rehearsed margin calls. And apparently, they have kicked off.

In the ugliest stock-market October anyone can remember, margin debt plunged by $40.5 billion, FINRA (Financial Industry Regulatory Authority) reported this morning – the biggest plunge since November 2008, weeks after Lehman Brothers had filed for bankruptcy:

During the stock market boom since the Financial Crisis, this measure of margin debt has surged from high to high, reaching a peak in May 2018 of $669 billion, up 60% from the pre-Financial Crisis peak in July 2007, and up 117% since January 2012. Since the peak in May, margin debt has dropped by $62 billion (-9.2%). Note the $40.5-billion plunge in October:

In the two-decade scheme of things, the relationship between stock market surges and crashes and margin debt becomes obvious.

Back during the dot-com bubble, dot-com stocks, traded mostly on the Nasdaq, included what today are booming survivors like Amazon [AMZN], barely hangers-on like RealNetworks [RNWK], or goners like eToys.

…click on the above link to read the rest of the article…

A Global People’s Bailout for the Coming Crash

October 18, 2018

A Global People’s Bailout for the Coming Crash

When the global financial crisis resurfaces, we the people will have to fill the vacuum in political leadership. It will call for a monumental mobilisation of citizens from below, focused on a single and unifying demand for a people’s bailout across the world.

***

A full decade since the great crash of 2008, many progressive thinkers have recently reflected on the consequences of that fateful day when the investment bank Lehman Brothers collapsed, foreshadowing the worst international financial crisis of the post-war period. What seems obvious to everyone is that lessons have not been learnt, the financial sector is now larger and more dominant than ever, and an even greater crisis is set to happen anytime soon. But the real question is when it strikes, what are the chances of achieving a bailout for ordinary people and the planet this time?

In the aftermath of the last global financial meltdown, there was a constant stream of analysis about its proximate causes. This centred on the bursting of the US housing bubble, fuelled in large part by reckless sub-prime lending and an under-regulated shadow banking system. Media commentaries fixated on the implosion of collateralised debt obligations, credit default swaps and other financial innovations—all evidence of the speculative greed and lax government oversight which led to the housing and credit booms.

The term ‘financialisation’ has become a buzzword to explain the factors which precipitated these events, referring to the vastly expanded role of financial markets in the operation of domestic and global economies. It is not only about the growth of big banks and hedge funds, but the radical transformation of our entire society that has taken place as a result of the increasing dominance of the financial sector with its short-termist, profitmaking logic.

…click on the above link to read the rest of the article…

Zero-Down Subprime Mortgages Are Back, What Could Possibly Go Wrong?

October 16, 2018

Zero-Down Subprime Mortgages Are Back, What Could Possibly Go Wrong?

Ten years after the collapse of Lehman Brothers, banks are once again taking bets on the same type of loans that nearly collapsed the economy amid a flurry of emergency bailouts and unprecedented consolidations.

Bank of America has backed a $10 billion program from Boston-based brokerage Neighborhood Assistance Corporation of America (NACA), to offer zero-down mortgages to low-income borrowers with poor credit scores, according to CNBC. NACA has been conducting four-day events in cities across America to educate subprime borrowers and then lend them money – with a 90% approval rate and interest rates around 4.5%.

“It’s total upside,” said AJ Barkley, senior vice president of consumer lending at BofA. “We have seen significant wins in this partnership. Just to be clear, when we get those loans with all the heavy lifting here, we’re over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans.”

Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills. Then they go through counseling to understand their monthly budget and ensure they can afford the mortgage payment. The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent. –CNBC

“That’s what’s going to help people who’ve been locked out of homeownership to really become homeowners and to build wealth,” said Bruce Marks, CEO of NACA. “It’s a national disgrace about the low amount of homeownership, mortgages for low- and moderate-income people and for minority homebuyers.”

To participate in the NACA lending scheme, borrowers can have credit scores – but will need to go through the education course and submit all necessary documents, “from income statements to phone bills,” reports CNBC. Then they undergo budget counseling to ensure they can afford the mortgage.

…click on the above link to read the rest of the article…

Weekly Commentary: Portending an Interesting Q4

September 30, 2018

Weekly Commentary: Portending an Interesting Q4

“Those who do not learn history are doomed to repeat it.” I’ll add that those that learn the wrong lessons from Bubbles are doomed to face greater future peril. The ten-year anniversary of the financial crisis has generated interesting discussion, interviews and scores of articles. I can’t help but to see much of the analysis as completely missing the critical lessons that should have been garnered from such a harrowing experience. For many, a quite complex financial breakdown essentially boils down to a single flawed policy decision: a Lehman Brothers bailout would have averted – or at least significantly mitigated – crisis dynamics.

I was interested to listen Friday (Bloomberg TV interview) to former Treasury Secretary Hank Paulson’s thoughts after a decade of contemplation.

Bloomberg’s David Westin: “It’s been ten years, as you know, since the great financial crisis that you stepped into. Tell us the main way in which the financial system is different today than what you faced when you came into the Treasury?”

Former Treasury Secretary Hank Paulson: “Well, it’s very, very different today. So, let’s talk about what I faced. What I faced was a situation where going back decades the government had really failed the American people, because the financial system had not kept pace with the modern financial markets. The protections that were put in place after the Great Depression to deal with panics were focused on banks – protecting depositors with deposit insurance. Meanwhile, the financial markets changed. And when I arrived (2006), half or more of the Credit was flowing outside of the banking system.

…click on the above link to read the rest of the article…

Weekly Commentary: Portending an Interesting Q4

September 29, 2018

Weekly Commentary: Portending an Interesting Q4

I was interested to listen Friday (Bloomberg TV interview) to former Treasury Secretary Hank Paulson’s thoughts after a decade of contemplation.

…click on the above link to read the rest of the article…

How the Crisis Caused a Pension Train Wreck

September 26, 2018

How the Crisis Caused a Pension Train Wreck

We’ve been writing for some time that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. Even though the widespread underfunding at public pension plans is in many cases due to government officials choosing to underfund them (New Jersey in the early 1990s is the poster child), in many cases, the bigger perp is the losses they took during the crisis, followed by QE lowering long-term interest rates so much that it deprived investor of low-risk income-producing investments. Pension funds and other long-term investors had only poor choices after the crisis: take a lot of risk and not be adequately rewarded for it (as we have shown to be the case with private equity).

And as we’ve also pointed out, if you think public pension plans are having a rough time, imagine what it is like for ordinary people (actually, most of you don’t have to imagine). It is very hard to put money aside, given rising medical and housing costs. Unemployment means dipping into savings. And that’s before you get to emergencies: medical, a child who gets in legal trouble, a car becoming a lemon prematurely. And even if you are able to be a disciplined saver, you also need to stick to an asset allocation formula. For those who deeply distrust stocks, it’s hard to put 60% in an equity index fund (one wealthy person I know pays a financial planner 50 basis points a year just to put his money into Vanguard funds because he can’t stand to pull the trigger).

…click on the above link to read the rest of the article…

The Great Financial Crisis: Bernanke and the Bubble

September 25, 2018

The Great Financial Crisis: Bernanke and the Bubble

Ben Bernanke responded to Paul Krugman’s post last week, which agreed with my argument that the main cause of the Great Recession was the collapse of the housing bubble rather than the financial crisis. Essentially, Bernanke repeats his argument in the earlier paper that the collapse of Lehman and the resulting financial crisis led to a sharp downturn in non-residential investment, residential investment, and consumption. I’ll let Krugman speak for himself, but I see this as not really answering the key questions.

I certainly would not dispute that the financial crisis hastened the decline in house prices, which was already well underway by September of 2008. It also hastened the end of the housing bubble led consumption boom, which again was in the process of ending already as the housing wealth that drove it was disappearing.

I’ll come back to these points in a moment, but I want to focus on an issue that Bernanke highlights, the drop in non-residential investment following the collapse of Lehman. What Bernanke seemed to have both missed at the time, and continues to miss now, is that there was a bubble in non-residential construction. This bubble essentially grew in the wake of the collapsing housing bubble.

Prices of non-residential structures increased by roughly 50 percent between 2004 and 2008 (see Figure 5 here). This run-up in prices was associated with an increase in investment in non-residential structures from 2.5 percent of GDP in 2004 to 4.0 percent of GDP in 2008 (see Figure 4).

This bubble burst following the collapse of Lehman, with prices falling back to their pre-bubble level. Investment in non-residential structures fell back to 2.5 percent in GDP. This drop explains the overwhelming majority of the fall in non-residential investment in 2009. There was only a modest decline in the other categories of non-residential investment.

…click on the above link to read the rest of the article…

10 Years Later, a Debt Crisis Is Building Again

September 24, 2018

10 Years Later, a Debt Crisis Is Building Again

Though it seems like only yesterday, it’s been a decade since my former employer, Lehman Brothers went bankrupt, and in the process, helped instigate a massive global financial crisis.

That collapse catapulted the Federal Reserve on a mission to, in its own narrative, save the economy from further collapse. In fact, its creation of $4.5 trillion to purchase U.S. treasury and mortgage related bonds from the big private banks in exchange for continued liquidity was the biggest subsidy in U.S. history.

In some ways, we seem much better off now. Employment is at record highs in most developed nations outside the Eurozone. Global economic growth has picked up overall and stock markets have recovered.

Indeed, many stock markets around the world have regained or passed their former record highs. Asset prices are booming.

But that only tells half the story. That’s because the last financial crisis was about debt and debt levels have increased substantially since 2008. The entire “recovery” was built on debt.

From 179% before the financial crisis, the global debt-to-GDP ratio has jumped to 217% today. Companies and governments have piled on more debt than before. Emerging-market debt, led by China, is also at a record. The big banks are even bigger, and remain “too big to fail.”

Eliminating all that debt is the ultimate solution for avoiding another crisis. That’s because if interest rates drift higher, it can lead to problems in debt repayment, followed by defaults, followed by crisis as defaults spread like a contagion. But there’s no magic bullet for doing that.

First, you should know that no two crises are exactly the same. The last one was met with huge debt on the back of the Fed’s quantitative easing policy. Central bank credit, or what I call dark money, tended to go to the wealthy and into financial assets.

…click on the above link to read the rest of the article…

Happy Anniversary

September 21, 2018

HAPPY ANNIVERSARY

“They have learned nothing, and forgotten nothing.”

Attributed to Talleyrand.

Since everybody else in financial media has been indulging in an orgy of self-reflection, selective recollection and brazen virtue-signalling on the back of the 10 year anniversary of Lehman Brothers’ bankruptcy in September 2008, and in steadfast keeping with our principle of ‘no bandwagon left unridden’, we reproduce below, word for word, our commentary first published on 1^st October 2008. A brief update then follows..

Armageddon outta here !

“Last night, Mr Brown made it clear he was ready to increase the level at which savers’ deposits were guaranteed from £35,000 to £50,000 but indicated he did not want to act until the markets had calmed.”

– From The Financial Times, 1^st October 2008.

As part of my O-level history course back in the mid-1980s, I wrote an extended essay on the topic of the atomic bombing of Hiroshima in 1945. My teacher made the useful suggestion of comparing the Hiroshima experience and related issues with those of the Dresden fire bombings earlier that fateful year. Even now I’m not sure whether either action could be easily or wholeheartedly justified and as a non-combatant (and non-civilian, for that matter) of the time in question, it still seems somewhat presumptuous even to try. What I do recall is that I concluded my study with the words of historian A.J.P. Taylor:

“War suspends morality.”

I recall these words because I am now reminded of advice given me a year ago when the crumbling of the credit markets first became manifest to a financially less literate world. While I was personally wrestling mentally with the moral hazard issues surrounding banking bailouts and the like, a South African fund manager friend made the following pertinent observation: in a shooting war, don’t waste time scrupling over moral hazard – the objective is survival.

…click on the above link to read the rest of the article…

How the Next Downturn Will Surprise Us

September 20, 2018

How the Next Downturn Will Surprise Us

In their campaign to contain the risks that caused the Great Recession, central bankers may have planted the seeds for the next global economic crisis.

Image

CreditCreditJi Lee

After the fall of Lehman Brothers 10 years ago, there was a public debate about how the leading American banks had grown “too big to fail.” But that debate overlooked the larger story, about how the global markets where stocks, bonds and other financial assets are traded had grown worrisomely large.

By the eve of the 2008 crisis, global financial markets dwarfed the global economy. Those markets had tripled over the previous three decades to 347 percent of the world’s gross economic output, driven up by easy money pouring out of central banks. That is one major reason that the ripple effects of Lehman’s fall were large enough to cause the worst downturn since the Great Depression.

Today the markets are even larger, having grown to 360 percent of global G.D.P., a record high. And financial authorities — trained to focus more on how markets respond to economic risk than on the risks that markets pose to the economy — have been inadvertently fueling this new threat.

Over the past decade, the world’s largest central banks — in the United States, Europe, China and Japan — have expanded their balance sheets from less than $5 trillion to more than $17 trillion in an effort to promote the recovery. Much of that newly printed money has found its way into the financial markets, where it often follows the path of least regulation.

Central bankers and other regulators have largely succeeded in containing the practice that caused disaster in 2008: risky mortgage lending by big banks. But with so much easy money sloshing around in global markets, new threats were bound to emerge — in places the regulators aren’t watching as closely.

…click on the above link to read the rest of the article…

Everything is AwesomeThe Donald in Wonderland: Down the Financial Rabbit Hole With Trump

September 19, 2018

The Donald in Wonderland: Down the Financial Rabbit Hole With Trump

Once upon a time, there was a little-known energy company called Enron. In its 16-year life, it went from being dubbed America’s most innovative company by Fortune Magazine to being the poster child of American corporate deceit. Using a classic recipe for book-cooking, Enron ended up in bankruptcy with jail time for those involved. Its shareholders lost $74 billion in the four years leading up to its bankruptcy in 2001.

A decade ago, the flameout of my former employer, Lehman Brothers, the global financial firm, proved far more devastating, contributing as it did to a series of events that ignited a global financial meltdown. Americans lost an estimated $12.8 trillion in the havoc.

Despite the differing scales of those disasters, there was a common thread: both companies used financial tricks to make themselves appear so much healthier than they actually were. They both faked the numbers, thanks to off-the-books or offshore mechanisms and eluded investigations… until they collapsed.

Now, here’s a question for you as we head for the November midterm elections, sure to be seen as a referendum on the president: Could Donald Trump be a one-man version of either Enron or Lehman Brothers, someone who cooked “the books” until, well, he imploded?

Since we’ve never seen his tax returns, right now we really don’t know. What we do know is that he’s been dodging bullets ever since the Justice Department accused him of violating the Fair Housing Act in his operation of 39 buildings in New York City in 1973. Unlike famed 1920s mob boss Al Capone, he may never get done in by something as simple as tax evasion, but time will tell.

…click on the above link to read the rest of the article…

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