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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe 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 theres 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 workedthough its success did not seem assured at the timeand 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 Americas 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
Me.
(35,454 posts)trueblue2007
(17,138 posts)bank collapse and i am retired. this thread really scares me.
Amishman
(5,541 posts)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)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.
AwakeAtLast
(14,112 posts)How can this not continue?
dalton99a
(81,073 posts)empedocles
(15,751 posts)SoonerPride
(12,286 posts)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)Not that it shouldn't be read. It should be. And the charts were very helpful in showing what's happening.
Thus far, Ive 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 onand offtheir 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 firms financial statements? The big banks use similar structures, called variable interest entitiescompanies 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 parkstwo 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)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.
Kitchari
(2,157 posts)delisen
(6,039 posts)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.
Celerity
(42,666 posts)roamer65
(36,739 posts)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)Totally agree. It will hurt all of us but will be devastating to the "economically disadvantaged" poor.