The Looming Bank Collapse

[Newest Reality]

The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

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.

To prevent the next crisis, Congress in 2010 passed the Dodd-Frank Act. Under the new rules, banks were supposed to borrow less, make fewer long-shot bets, and be more transparent about their holdings. The Federal Reserve began conducting “stress tests” to keep the banks in line. Congress also tried to reform the credit-rating agencies, which were widely blamed for enabling the meltdown by giving high marks to dubious CDOs, many of which were larded with subprime loans given to unqualified borrowers. Over the course of the crisis, more than 13,000 CDO investments that were rated AAA—the highest possible rating—defaulted.

https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/

[Wellstone ruled]

1. Mnuchin claimed this AM

it is not a problem. All loans 2 million and under are not a problem,trust me he said. We are going to just stretch these out by putting the payments on the back end or have the Mortgage holder do work outs.

We heard that shit in 2008 and beyond. Fun fact,Mnuchin via a Rental Company he owns,has several thousand Houses here in the Vegas Valley and the State moratorium on evictions ends Tuesday next week. And guess what,most of those Rentals are Casino and Gig Workers many whom are and have not gotten their Unemployment Checks.

[dixiegrrrrl]

3. Apparently Kushner's thousands of apt. rental didn't bother to help renters.

He and his dad were/are the Ferguson of landlord schemes, they have even bought apts, and gone after PREVIOUS tenants for fees. Like payday loans, they charge hidden fees, nickle and dime charges, and are lousy about repairs, grossly so.

[Wellstone ruled]

11. Mnuchin charges late fees and interest

at 8% of the Rental Balance plus interest on the late fees.

[Blue_true]

6. The problem are not home loans.

There is a new class of collaterized debt obligation called CLO (from the article). CLOs are packaged loans to budinesses, mostly small ones, most of which are going under or have gone under.

[Wellstone ruled]

10. CLO's are a bomb with a damn short fuse.

BTW,Payday Loan Sharks use these as well. Understand the Treasury has been taking these suckers in lieu solid debentures.

Just what could go wrong? Golly gee whiz.

[Blue_true]

13. Yeah. It's like walking on ice with a pair of oil slicked shoes on. nt

[Wellstone ruled]

14. Today is proving this true.

Financials are getting killed to the tune of 6-12% sell off. And with mortgage and Rental moratoriums coming off next Tuesday,not holding my breath.

End of Q2 is Friday technically,last day of Q2 trading,and it is going to get butt ugly. New spin is,no real improvement until nine to ten months out.

BTW,Wall Street is preparing for a Biden Democratic controlled Congress as per the Broker Chatter.

[Generic Brad]

2. Many of us sense looming disaster

Prepare as best you can.

[Blue_true]

8. Will likely make 2008 look like a picnic.

The FED will be out of bullets when it hits.

[Corgigal]

12. We do.

While I really would like to purchase a new car, I’m scared to do so. Not purchasing much besides food.

[Blue_true]

4. Wow. With many businesses struggling, CLOs

are about to go boom!

[Celerity]

5. K & R

[Baked Potato]

7. Yep, bankers are being bad again and Democrats will have to spank them, again.

This time, there could be civil unrest. Democrats may have to make direct payments to the people. Bailing out only the rich won’t be as easy as last time.

[Blue_true]

9. I agree with your assessment.

The government may have to "wall off" the economy and let some banks fail. The walling off is best done by putting money in the pockets of citizens.