The current ageing and unstable cycle could finish in much the same explosive way, contrary to the widespread belief that it was a once-in-a-century event caused by speculators.
“The end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance,” said Claudio Borio, the BIS’s chief economist.
The venerable Swiss-based institution says the financial system is about to be tested as the US Federal Reserve steps up the pace of monetary tightening.Sponsored Ads
Fed rate rises will start to drain the global system of dollar liquidity, setting off a dollar squeeze and driving up borrowing costs across much of the world. “The overarching issue is the global economy’s sensitivity to higher interest rates,” it said.
Millions lost their homes and jobs, and not only did the bankers not go to jail, most of them got new and better gigs, according to a new study.
By now it’s well known that no senior bank executives went to jail for the fraudulent activities that spurred the financial crisis. But a new study shows many of the senior bankers most closely tied to pre-crisis fraud didn’t suffer one bit in the aftermath. They mostly kept their jobs, enjoying the same kinds of opportunities and promotions as their colleagues.
“I’m telling you right now, the US is going to have a crash and it will be massive,” asserted Mark Yusko at Mauldin Economics’ Strategic Investment Conference.
In his keynote speech, Mark Yusko, CIO of Morgan Creek Capital Management, outlined where he sees the biggest opportunities and risks for investors are today.
Dr Rajan warned against credit-default swaps, which act as insurance against bond defaults, going sour and said there was also immense systemic risk if banks failed to meet their obligations.
His prognostications were dismissed for the most part. Who was this stripling to try to poop the party of the century? Mr Lawrence Summers, the noted economist and former president of Harvard University, was particularly scathing. Others, to borrow the words of a Rajan predecessor as IMF chief economist, thought he was “smoking something not quite legal”.
But a little more than two years later, Dr Rajan’s forebodings came true when the meltdown in the US financial system triggered the global financial crisis.
A global investment house has warned that China faces a financial crisis within the next decade as government and private debt rise to unsustainable levels.
“I think there is a risk, to almost near certainty, of a banking and financial crisis in China sometime in the next decade, but I think it’s very unlikely to arise for the next couple of years,” Mr Kaletsky said.
Here are five hot spots that could saddle Trump with the next financial crisis.
1. The Housing Bubble
2. Student Debt
3. European Banks
5. Trump’s Promises and Political Divisions
The looming pension crisis is not limited by geography or economic focus. These including former public employees, such as members of South Carolina’s government pension plan, which covers roughly 550,000 people — one out of nine state residents — and is a staggering $24.1 billion in the red. These include former blue collar workers such as roughly 100,000 coal miners who face serious cuts in pension payments and health coverage thanks to a nearly $6 billion shortfall in the plan for the United Mine Workers of America. And when the bill comes due, we will all be in very big trouble.
In short, the vast bulk of the dramatic increase in the size of the banking system relative to the economy comes from the acceleration of real estate exposure — a rising trend for more than six decades. How can the banks keep doing this? Well, it helps to have your liabilities guaranteed by the government, both explicitly through deposit insurance and implicitly through bailouts and central banking.
Should the banking system keep getting bigger relative to the economy, and should this increase continue overwhelmingly to reflect real estate risk? That is a dubious proposition. As Columbia University’s Charles Calomiris has written (in a not-yet-published paper): “The unprecedented pandemic of financial system collapses over the last four decades around the world is largely a story of real estate booms and busts. Real estate is central to systemic risk.”
Very true. But as Calomiris notes, the Financial Stability Oversight Board, set up as part of the Dodd-Frank Act to oversee the U.S. financial system, “seems to be uninterested.”
Enrich plunged into the story in 2013, when Hayes began texting him and then meeting with him to discuss Libor, his criminal case and sometimes his increasingly fragile personal life – a goldmine for any reporter. These interactions turned into a captivating 2015 series for The Wall Street Journal, “The Unraveling of Tom Hayes.”
In the “The Spider Network,” published by HarperCollins, Enrich builds on this narrative, fleshing out Hayes’ rocky path to a banking career, his high-flying days as a trader in Japan and then his downward spiral after facing prosecution. At one point, his wife no longer trusted leaving their son home alone with the distraught Hayes.
More broadly, Enrich explores the gray areas where bankers push the envelope – and the disastrous consequences they can face if they’re caught, especially if their conversations are preserved in emails and chat sessions.
The Federal Reserve bailed out Bear Stearns on March 14, nine years ago. What has the Fed learned from that mistake? Not enough, perhaps.
Today, the Fed is again ignoring the GSEs and their potential contribution to future instability. According to Freddie’s 2016 annual report, “Expanding access to affordable mortgage credit will continue to be a top priority in 2017.” Fannie/Freddie have redefined “subprime” to a credit rating of below 620; previously, these firms and banking regulators had used 660 as the dividing line that defined a subprime borrower. Now by using the lower number, they may be buying even weaker mortgages than before the financial crisis.
The GSEs are wrapping new sub-subprime mortgages into the mortgage-backed securities they sell to the market. Fannie and Freddie guarantee these securities, and because the federal government stands behind the GSEs, there is little market discipline. Think about that: With regard to subprime mortgages we may now be in worse shape than we were before the crisis.