Visitor publish from Jim Quinn on the Burning Platform:
“We’ve received sturdy monetary establishments…Our markets are the envy of the world. They’re resilient, they’re…progressive, they’re versatile. I feel we transfer in a short time to handle conditions on this nation, and, as I mentioned, our monetary establishments are sturdy.” – Henry Paulson – 3/16/08
“I’ve full confidence in banking regulators to take acceptable actions in response and famous that the banking system stays resilient and regulators have efficient instruments to handle any such occasion. Let me be clear that through the monetary disaster, there have been buyers and homeowners of systemic massive banks that had been bailed out . . . and the reforms which have been put in place means we’re not going to do this once more.” – Janet Yellen – 3/12/23
With the latest implosion of Silicon Valley Financial institution and Signature Financial institution, the biggest financial institution failures since 2008, I had an amazing feeling of deja vu. I wrote the article Is the U.S. Banking System Secure on August 3, 2008 for the In search of Alpha web site, one month earlier than the collapse of the worldwide monetary system. It was this text, amongst others, that caught the eye of documentary filmmaker Steve Bannon and satisfied him he wanted my perspective on the monetary disaster for his movie Technology Zero. After all he was fairly unknown in 2009 (not a lot anymore) , and I proceed to be unknown in 2023.
The quotes above by the mendacity deceitful Wall Road managed Treasury Secretaries are precisely 15 years aside, however are precisely the identical. Their sole job is to maintain the arrogance recreation going and to guard their actual constituents – the Wall Road bankers. And simply as they did fifteen years in the past, the powers that be as soon as once more used taxpayer funds to bailout reckless bankers. Two hours earlier than the one resolution the Feds know – print cash and shovel it to the bankers – Michael Burry defined precisely what was about to occur.
When Biden, Yellen, and the remainder of the Wall Road safety staff inform you the banking system is secure they usually have it underneath management, they’re mendacity, simply as I mentioned fifteen years in the past.
“Our economic system and banking system is so advanced and intertwined that nobody is aware of the place the subsequent shoe will drop. Politicians and authorities bureaucrats are mendacity to the general public once they say that every thing is alright. They have no idea. Do you have to consider a governmental company that wishes the general public to stay at nighttime to keep away from financial institution runs, or an unbiased evaluation primarily based upon stability sheet evaluation?”
Again within the days of The Massive Quick, earlier than the general public knew about poisonous subprime mortgages issued by legal bankers and packaged into derivatives given a AAA ranking by the grasping compliant ranking businesses, the Wall Road cabal knew time was rising quick, however that didn’t hold the mendacity bastards like John Thain (Merrill Lynch), Dick Fuld (Lehman Brothers), Angelo Mozilo (Countrywide), Kerry Killinger (Washington Mutual), and others from pretending their establishments had been wholesome and worthwhile – proper up till the day they collapsed. Mendacity is within the DNA of each monetary government, politician, authorities bureaucrat, and Federal Reserve hack.
The quote from Hemingway appeared pertinent in 2008 and is simply as pertinent immediately.
There are various similarities between what was occurring in 2008 and what’s occurring immediately. Bear Stearns went belly-up in March 2008 and was taken over by JP Morgan in an organized marriage by Bernanke and the Fed. The standard suspects assured the nation this was a one off state of affairs and the banking system was sturdy. The Wall Road banks had been reporting big income as a result of they had been hiding the large losses on their stability sheets. In the event that they didn’t foreclose, they didn’t must write-off the mortgages. The poisonous debt simply saved constructing.
In the summertime of 2008 the banks began to report losses, however assured buyers it was solely a one time hit. All was nicely. The week I wrote my article Wall Road financial institution shares had soared 20% or extra as a result of their reported losses for the 2nd quarter had been lower than anticipated. My article minimize by all of the BS being shoveled by the likes of Larry Kudlow, Jim Cramer, the Wall Road CEOs, and the supposed analyst consultants who nonetheless had purchase rankings on these bloated debt pigs. My evaluation was considerably opposite to the CNBC lies:
“I might estimate that we’re solely within the early innings of financial institution write-offs. The write-offs will a minimum of equal the earlier peaks reached within the early Nineteen Nineties. If a big financial institution equivalent to Washington Mutual or Wachovia had been to fail, it will wipe out the FDIC fund. If the FDIC fund is depleted, guess who can pay? Proper once more, one other taxpayer bailout. What’s one other $100 or $200 billion amongst buddies.”
Merrill Lynch was reporting billions in losses and issuing new inventory to try to survive. They had been clearly in a loss of life spiral and I noticed the writing on the wall:
“How lengthy will buyers be duped into supporting this catastrophe? You’ll be able to make sure that the opposite suspects (Citicorp, Lehman Brothers, Washington Mutual) might be asserting extra write-downs and capital dilution within the coming weeks.”
By the tip of September Lehman Brothers and Washington Mutual had been gone. Merrill Lynch and Wachovia had been acquired for pennies, and Citicorp turned a zombie financial institution sustained by the Fed for years. My article was dire and my evaluation confirmed we had been in for years of ache and the worst drop in housing costs in historical past:
“There are $440 billion of adjustable mortgages resetting this yr. Meaning that almost all of foreclosures won’t happen till 2009. Which means the banks will nonetheless be writing off billions of mortgage debt in 2009. The reversion to the imply for housing costs and the continued avalanche of foreclosures just isn’t a recipe for a banking restoration. Dwelling costs have one other 15% to go on the draw back.”
“The patron is being pressured to chop again on consuming out and procuring. The marginal gamers will fall by the wayside. Massive field retailers, eating places, mall builders, and industrial builders are about to seek out out that their large enlargement was constructed upon false assumptions, a basis of sand, and pushed by extreme debt.”
It appears I used to be fairly correct in my evaluation, as residence costs went down greater than 15%, not bottoming till 2012. This world monetary collapse introduced an finish to the large field enlargement part, as many went underneath, and the survivors targeting their current shops. We entered the worst recession because the Nineteen Thirties. Probably the most fascinating half in going again to my 15 yr previous article was the psychology of the group revealed within the remark part. Regardless of my use of unequivocal info, I used to be branded a doomer, overly pessimistic, and an fool. Many commenters mentioned the Fed would save the day and it was time to purchase the dip. If they’d purchased the dip on the day of my article, they’d have misplaced 44% over the subsequent 8 months throughout a relentless bear market.
The query now could be whether or not the present state of affairs is best or worse than the state of affairs we confronted in 2008. There are some factual gadgets which can assist in assessing the place we’re. In August 2008 the nationwide debt was $9.5 trillion (67% of GDP). Right now it’s $31.5 trillion (130% of GDP). Whole family debt was $12 trillion in 2008 and stands at $17 trillion immediately. The Fed’s stability sheet was $900 billion in 2008 and now stands at $8.3 trillion. Inflation was at a 17 yr excessive in August 2008 at 5.9% and stands at 6.0% immediately. GDP was rising at 3.2% in 2008, versus 2.7% immediately. An neutral observer must conclude our financial state of affairs is much worse than 2008.
However all you hear is completely satisfied speak and false bravado from Wall Road analysts masking their very own bancrupt trade. They continuously harp on the very fact mortgage lending is far more threat averse and safe. After all the subsequent liquidity pushed disaster isn’t pushed by the identical precise components because the earlier liquidity pushed disaster. However the important thing components are all the time the identical. Free financial insurance policies by the Fed result in extra threat taking by grasping bankers, hedge funds, and company executives. Then one thing blows up and the billionaires get bailed out on the expense of the taxpayers who’ve been getting devastated financially by the inflation brought on by Powell and his printing press.
To this point, this newest banking disaster “that nobody might see coming”, besides any sincere monetary analyst who understands math and historical past, is following the identical path as 2008. The narrative about banks not taking credit score threat and peddling dangerous mortgages is being blown up as we communicate. As a substitute of the chance being centered on poisonous mortgages like 2008, the chance has permeated each crevice of the monetary system resulting from years of 0% charges by the Fed. Nearly every thing is overvalued by 30% to 50% as a result of low cost debt was obtainable to everybody for every thing. Extraordinarily low rates of interest led to excessive threat taking by bankers, companies, residence patrons, auto patrons, and politicians. The unleashing of inflation by Powell’s insurance policies has led to the tide going out and revealing who was swimming bare.
Whereas threat managers at banks internationally have been concentrating on variety and pushing woke agendas about transgender rights, local weather change and training ESG investing, they ignored the straightforward idea that bonds they acquired at 1% lose cash when rates of interest go to 4%. Simply because the banks in 2008 had been sitting on billions of unrealized losses from the poisonous mortgages on their books, the identical banks are actually sitting on billions of unrealized losses from the latest poisonous asset – U.S. Treasuries. Everybody is aware of it. It’s simply math. They’ve been relying on Powell to reverse course, however with reported inflation nonetheless at 6%, he’s trapped. Silicon Valley Financial institution and Signature Financial institution had been swimming bare and when depositors realized that reality a financial institution run ensued. Poof!!! Sudden Disaster.
The narrative being spun is it is a regional banking disaster confined to smaller banks. This narrative is being spun by the large Wall Road banks and their captured media mouthpieces, with the intent that depositors at smaller banks would panic and shift their deposits to the “secure” Wall Road banks. The reality is that the Wall Road banks have large ranges of unrealized losses and desperately want deposits to maintain them from dealing with the identical destiny as Silicon Valley and Signature. These unrealized losses aren’t going away and should be realized within the close to future.
Credit score Suisse has been the loopy uncle of the monetary trade, saved within the basement for years. Their demise is a foregone conclusion, however that has been coated up and ignored by these within the know. They look like the brand new Lehman Brothers, which can blow up the already bancrupt European monetary system and unfold a contagion of losses throughout the monetary world. These quadrillions in obscure derivatives are an unknown factor within the coming meltdown. However you may be certain they gained’t have a constructive influence.
Each small and enormous banks have little to no reserves left to lend. Debt issuance is the Potemkin ingredient in protecting this farce of an financial system working. With out debt to finance overextended shopper life, funding wars in Ukraine, and the woke agendas of companies and politicians, all the facade collapses.
Actual wages have been adverse for 23 consecutive months. A banking disaster means banks will cut back lending dramatically. Customers have been pressured to dwell off their bank cards for the final two years, as their financial savings dried up and their wages purchased much less. A deep recession is within the playing cards. Customers are already pulling again and spending much less. With credit score drying up and spending taking place, employers throughout the globe will begin laying folks off. As unemployment rises, folks will cease paying their huge mortgage and auto loans. This can result in extra losses at banks, identical to 2008/2009.
Everybody will look to the Fed to avoid wasting the day. And they’re going to fake they’ve every thing underneath management, however they don’t. Again in 2008 their stability sheet was solely $900 billion. Right now it’s 9 instances as massive. The relentless QE whereas rates of interest had been suppressed has left them with huge unrealized losses on the mortgage and Treasury bonds they purchased. They let the inflation genie out of the bottle and now it’s ingrained within the economic system. Corporations who gave 2% annual raises to their workers for a decade are actually pressured to offer 4% or extra because of the Fed created inflation.
If the Fed slashes charges and goes again to cash printing by QE, the present 6% inflation charge will skyrocket again to double digits. If Powell does nothing or continues elevating charges, the banking system will doubtless collapse. His decisions are deflationary collapse or hyper-inflationary collapse. He’s caught between the proverbial rock and a tough place. Since he’s managed by Wall Road, he’ll slash charges, restart QE, backstop the bankers, and screw the common American, as all the time. My conclusion reached in my 2008 article, simply earlier than the monetary system imploded appears, for probably the most half, to use immediately.
“The U.S. banking system is actually bancrupt. The Treasury, Federal Reserve, FASB, and Congress are colluding to maintain the American public at nighttime for so long as doable. They’re making an attempt to purchase time and prop up these banks to allow them to persuade sufficient fools to offer them extra capital. They are going to proceed to write down off debt for a lot of quarters to come back. We’re at risk of duplicating the errors of Japan within the Nineteen Nineties by permitting them to fake to be sound. We might have a zombie banking system for a decade.”
We by no means paid the piper and cleaned out the excesses of the earlier banking disaster. The monetary situation of the nation is much worse than it was in 2008. The monetary situation of the common American is much worse than it was in 2008. The monetary situation of the Federal Reserve is much worse than it was in 2008. The monetary situation of the banking system is much worse than it was in 2008. Our leaders kicked the can down the street to be able to give the system the looks of stability, and we allow them to do it. We might have taken the ache in 2008 and let the system reset after purging all of the dangerous debt and dangerous banks, however we selected the mistaken path and can now endure the implications described by Ludwig von Mises a century in the past.
“There isn’t a technique of avoiding the ultimate collapse of a increase led to by credit score enlargement. The choice is barely whether or not the disaster ought to come sooner as the results of voluntary abandonment of additional credit score enlargement, or later as a ultimate and whole disaster of the foreign money system concerned.” – Ludwig von Mises
My recommendation 15 years in the past on the finish of the article was to scale back your deposit publicity in any respect monetary establishments, don’t put money into monetary shares, observe the writings of sincere truthful analysts and this ultimate piece of recommendation, which is as stable now because it was then:
“Once you see a financial institution CEO or a high authorities official inform you that every thing is alright, run for the hills. They’re mendacity. They didn’t see this coming they usually don’t know the way it will finish.”
We’re firstly of the subsequent world monetary disaster, not the tip. Fourth Turnings don’t fizzle out. They construct to a crescendo of chaos and warfare. This monetary disaster will usher within the navy battle that has been beckoning for the final yr. Time to buckle up and put together for the approaching storm.
Visitor publish from Jim Quinn on the Burning Platform.