Category Archives: Financial Crisis

The Big Short: is the next financial crisis on its way? | Money | The Guardian

In the Oscar-winning The Big Short, Steve Carell plays the angry Wall Street outsider who predicts (and hugely profits from) the great financial crash of 2007-08. He sees sub-prime mortgages rated triple-A but which, in reality, are junk – and bets billions against the banks holding them. In real life he is Steve Eisman, he is still on Wall Street, and he is still shorting stocks he thinks are going to plummet. And while he’s tight-lipped about which ones (unless you have $1m to spare for him to manage) it is evident he has one major target in mind: continental Europe’s banks – and Italy’s are probably the worst.

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Why Italy? Because, he says, the banks there are stuffed with “non-performing loans” (NPLs). That’s jargon for loans handed out to companies and households where the borrower has fallen behind with repayments, or is barely paying at all. But the Italian banks have not written off these loans as duds, he says. Instead, billions upon billions are still on the books, written down as worth about 45% to 50% of their original value.

The Big Short: is the next financial crisis on its way? | Money | The Guardian

China’s Debt Addiction Could Lead to a Financial Crisis – Barron’s

China’s borrowing spree could end badly, with dangerous repercussions for the rest of the world.

These days, however, China has lost much of its economic luster. GDP, or gross domestic product growth has slowed dramatically; the economy expanded by only 6.7% in the first three quarters of this year, according to government reports that most deem wildly inflated. Even so, that’s the slowest growth rate in 25 years. The nation is likewise afflicted with unhealthy asset bubbles that come and go with worrisome rapidity, most recently, last year’s stock market boom and bust.

Spates of asset atrial fibrillation are often precursors of economic trouble, especially in developing economies like China’s. The root problem is that China has relied on mindless monetary stimulus since 2008 to muscle its way to continued output growth. As a consequence, debt levels, mainly corporate borrowings, have surged. According to China finance expert Victor Shih, an associate professor of political economy at the University of California, San Diego, and founder of China Query, the country’s debt load has expanded from 150% of GDP before the onset of the 2008 global credit crisis to about 300%.

China’s Debt Addiction Could Lead to a Financial Crisis – Barron’s

Why a Chinese Real Estate Bubble Could Bring Down the Global Economy

While U.S. GDP grew by 2.9% this quarter, trouble is brewing on the other side of the Pacific.

Analysts are sounding the alarm about growing Chinese debt loads and a potential real estate bubble that threatens to dramatically slow growth in Asia, and which could be a drag on the entire global economy if it bursts.

Why a Chinese Real Estate Bubble Could Bring Down the Global Economy

The eurozone is turning into a poverty machine

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the European Central Bank throws at the economy.

We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine.

The eurozone is turning into a poverty machine

Euro ‘house of cards’ to collapse, warns ECB prophet

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.

Euro ‘house of cards’ to collapse, warns ECB prophet

Future of Banking Looks Dark—Why That’s a Problem – WSJ

Institutions’ sagging profitability poses wider threats to economic growth

They discovered that markets think banks are much more likely now to lose half their market value than before the crisis. They interpret this as a “decline in the franchise value of major financial institutions, caused at least in part by new regulations.” The counterintuitive implication: The bevy of rules designed to make banking safer may, by endangering their long-term viability, ultimately achieve the opposite.

Future of Banking Looks Dark—Why That’s a Problem – WSJ

China heading for ‘financial crisis’ that could have ‘very serious repercussions’ for global economy, IMF warns | The Independent

China could be heading for a financial crisis due to the level of financial and corporate debt, the International Monetary Fund (IMF) has warned.

Markus Rodlauer, deputy director of the IMF’s Asia-Pacific department, said the level of debt in the Chinese economy was on an “unsustainable path”, adding that a financial problem in China would have “very serious repercussions” for the global economy.

Mr Rodlauer told The Telegraph: “The level of financial and corporate debt and the complexity of the financial system and rapid growth in shadow banking is on an unsustainable path.

China heading for ‘financial crisis’ that could have ‘very serious repercussions’ for global economy, IMF warns | The Independent

Is Deutsche Bank the next Lehman moment?

But while fears of a “Lehman moment” still keep investors up at night, the general consensus on Wall Street is that Deutsche Bank’s problems, while sizable, won’t snowball.

“Whatever happens with Deutsche Bank, this is not — I repeat, not — a Lehman moment,” says Don Luskin, chief investment officer at investment firm TrendMacro. “We are not looking at globally interconnected fragility like we were in 2008. And if anything goes wrong at all, after the 2008 experience, the central banks of the world know precisely what to do to put the fire out.”

Is Deutsche Bank the next Lehman moment?

Crisis of Globalization Lies Behind Deutsche Bank’s Troubles – WSJ

Investors doubt the bank can earn an economic return on its equity, particularly when the amount it’s required to hold is a moving target, Simon Nixon writes

What lies at the heart of Deutsche’s troubles is the market’s loss of confidence in its business model: Investors doubt whether the bank can ever earn an economic return on its equity, particularly when the amount of equity it is required to hold is proving a moving target as regulatory demands rise ever higher. In recent years, Deutsche’s returns have been crushed by a combination of tougher regulation, higher capital requirements, negative interest rates, flatter yield curves, less corporate activity, lower asset-management fees and lower trading income.

Crisis of Globalization Lies Behind Deutsche Bank’s Troubles – WSJ