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LiberalArkie

(15,686 posts)
Wed Jun 10, 2020, 10:57 AM Jun 2020

The Looming Bank Collapse


After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.

You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.

The financial crisis of 2008 was about home mortgages. Hundreds of billions of dollars in loans to home buyers were repackaged into securities called collateralized debt obligations, known as CDOs. In theory, CDOs were intended to shift risk away from banks, which lend money to home buyers. In practice, the same banks that issued home loans also bet heavily on CDOs, often using complex techniques hidden from investors and regulators. When the housing market took a hit, these banks were doubly affected. In late 2007, banks began disclosing tens of billions of dollars of subprime-CDO losses. The next year, Lehman Brothers went under, taking the economy with it.

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.

-More

https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/?utm_source=digg
16 replies = new reply since forum marked as read
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The Looming Bank Collapse (Original Post) LiberalArkie Jun 2020 OP
Dear God Me. Jun 2020 #1
Dear GOD what? scary. I have a small savings account. Should I take my & out?? trueblue2007 Jun 2020 #14
as long as your balance is under $250,000, you're fine even if the bank fails Amishman Jun 2020 #16
Things economic are starting to feel rather "bubbly" these days... Wounded Bear Jun 2020 #2
But Trumpies get to "own the libs"! AwakeAtLast Jun 2020 #11
Kick dalton99a Jun 2020 #3
Deep, learned, - definitely 'looming collapse'. empedocles Jun 2020 #4
I just hope all these things that are going to crash do so prior to November. SoonerPride Jun 2020 #5
That was some gloomy reading. CrispyQ Jun 2020 #6
It doesn't surprise me customerserviceguy Jun 2020 #8
k&r n/t Kitchari Jun 2020 #7
No More Big Bank Bailouts should be our position delisen Jun 2020 #9
K & R Celerity Jun 2020 #10
The big banks won't collapse. roamer65 Jun 2020 #12
Hyperinflation Duppers Jun 2020 #15
K & R appalachiablue Jun 2020 #13

trueblue2007

(17,138 posts)
14. Dear GOD what? scary. I have a small savings account. Should I take my & out??
Thu Jun 11, 2020, 01:38 AM
Jun 2020

bank collapse and i am retired. this thread really scares me.

Amishman

(5,541 posts)
16. as long as your balance is under $250,000, you're fine even if the bank fails
Thu Jun 11, 2020, 10:02 AM
Jun 2020

FDIC covers it and that is a full federal government guarantee. If that falls through then the money is worthless anyway as we would have a total government collapse.

Banks might not be as bad off as we think. They got a huge infusion of cash through fees/payments for handling the PPP loans. The fee paid to the bank was anywhere from 1-5% of the loan's amount (depending on size).

Wounded Bear

(58,440 posts)
2. Things economic are starting to feel rather "bubbly" these days...
Wed Jun 10, 2020, 11:04 AM
Jun 2020

The stock market is soaring based on not much and the student debt problem is not being addressed in any coherent way.

Right now the market is soaring on Fed stimulus. I don't think it's sustainable.

SoonerPride

(12,286 posts)
5. I just hope all these things that are going to crash do so prior to November.
Wed Jun 10, 2020, 11:06 AM
Jun 2020

and not after.

These are on trump and I don't want any possibility of the press blaming Biden for this.

CrispyQ

(36,231 posts)
6. That was some gloomy reading.
Wed Jun 10, 2020, 11:35 AM
Jun 2020

Not that it shouldn't be read. It should be. And the charts were very helpful in showing what's happening.

snip...

Thus far, I’ve focused on CLOs because they are the most troubling assets held by the banks. But they are also emblematic of other complex and artificial products that banks have stashed on—and off—their balance sheets. Later this year, banks may very well report quarterly losses that are much worse than anticipated. The details will include a dizzying array of transactions that will recall not only the housing crisis, but the Enron scandal of the early 2000s. Remember all those subsidiaries Enron created (many of them infamously named after Star Wars characters) to keep risky bets off the energy firm’s financial statements? The big banks use similar structures, called “variable interest entities”—companies established largely to hold off-the-books positions. Wells Fargo has more than $1 trillion of VIE assets, about which we currently know very little, because reporting requirements are opaque. But one popular investment held in VIEs is securities backed by commercial mortgages, such as loans to shopping malls and office parks—two categories of borrowers experiencing severe strain as a result of the pandemic.



...because reporting requirements are opaque.

There's so much the dems need to address if they ever get majorities in Congress and the WH. We should start a list.

customerserviceguy

(25,183 posts)
8. It doesn't surprise me
Wed Jun 10, 2020, 01:13 PM
Jun 2020

that Wells Fargo is trying actively to hide their mismanagement.

I'd be curious to know if there is a list of banks that is ranked by safety. I have two banks, just in case one is inaccessible for a few days.

delisen

(6,039 posts)
9. No More Big Bank Bailouts should be our position
Wed Jun 10, 2020, 01:31 PM
Jun 2020

They severely damaged more than 10 years of our lives and severely damaged a cohort of school graduates.

Help üst go to people ant banks or massive corporations or corporate shield abusers.

roamer65

(36,739 posts)
12. The big banks won't collapse.
Thu Jun 11, 2020, 01:23 AM
Jun 2020

There eventually will be a massive worldwide currency crisis.

The Federal Reserve is engaging as we speak in unlimited QE. Unlimited money supply eventually means hyperinflation.

The Fed is going to monetize just about any and every financial instrument it deems necessary.

Duppers

(28,094 posts)
15. Hyperinflation
Thu Jun 11, 2020, 09:52 AM
Jun 2020

Totally agree. It will hurt all of us but will be devastating to the "economically disadvantaged" poor.

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