Pick Your Financial Crash

[Celerity]

What are the risks of a financial crash in the coming year? Let us count the ways.

https://prospect.org/2025/12/09/pick-your-financial-crash/



The stock market has made gains at rates that are several multiples more than the growth of the real economy for three years running. Investor euphoria is always a sign of danger ahead, but this time there are other special factors signaling a pending crash. And of course, they all interact. Once investors head for the exits, others start bailing.

I. Deregulation of Increasing Risk. Trump’s bank regulators are systematically dismantling the safeguards that were put in place after the financial collapse of 2008. That crash was caused by opaque financial instruments such as credit derivatives that allowed almost infinite amounts of leverage. When they turned out to be worthless, the collapse was also nearly infinite. In the aftermath, Congress and the regulators limited the risks that banks could take. In classic Wall Street form, the wise guys responded by creating non-banks that could do most of what banks do.

One “innovation” was private credit, a cool-kid word for shadow banking. Another was fintech, a cool-kid word for shadow banking with an app. These newly invented lenders are banks in everything but name, and thus evade nearly all transparency, supervision, or regulation. Absent regulation, these non-bank banks can engage in sky-high leverage, meaning that the ratio of lending to their own real capital can be unlimited and unexamined.

In 2013, as part of the post-2008 reforms, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve put in place leverage limits for banks. Loans worth more than six times a company’s annual earnings were seen as too risky. That ruled out a lot of bank loans to fund private equity takeover targets, or loans to tech fantasies that had no earnings. Private credit stepped in to fund those projects that banks couldn’t take. Capital raised for lending to private equity–backed companies jumped more than a hundredfold to nearly $700 billion between 2006 and 2024, according to The Wall Street Journal.

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[markodochartaigh]

1. How about the idea floated by Trump's cronies to get rid of the FDIC?

https://www.cnn.com/2024/12/18/business/fdic-trump-bank-regulation

[Fiendish Thingy]

2. The next administration better tax the fuck out of the billionaires to pay for the damage done to the economy by Trump.