25 Apr “Like All Sequels It Will Be Worse”
“It’s not a coincidence that both the borrowers and the lenders are broke. You know, the reason for that is the Fed. The Fed kept interest rates artificially low for more than a decade encouraging people to go deeper and deeper into debt and banks to extend them the credit. And now that they’re forced to raise interest rates, something that was always going to happen — they have created another financial crisis, which is something I’ve been warning about for years.”
Of course, the media doesn’t want to call it a financial crisis. Instead, they call it a ‘banking crisis.’
“The financial crisis of 2008 was a banking crisis. Nobody wants to say what it is because they don’t want to invoke memories and comparisons to 2008. But this is a sequel to 2008. And like all sequels, this one is going to be worse.”
I’m shocked we can even get an admission of a banking crisis considering how often we’re told the system is completely sound. 😒
“The president of the Federal Reserve Bank of Minneapolis Neel Kashkari reinforced on Sunday that the banking system is ‘sound.’
‘The banking system is resilient, and it’s sound,’ Kashkari told Margaret Brennan on CBS’s ‘Face the Nation.’ ‘The banking system has a strong capital position and a lot of liquidity and has the full support of the Federal Reserve and other regulators standing behind it. Now, I’m not saying that all of the stresses are behind us, I expect this process will take some time.'” –https://thehill.com/homenews/sunday-talk-shows/3918932-kashkari-fundamentally-the-banking-system-is-sound/
Recognize the name?
“The most valuable asset they have is their job.” -Neel Kashkari, President of the Federal Reserve Bank of Minneapolis. Then he goes on to say that the odds of people losing their jobs is not remote.
-“Get your money for nothin & your job loss for free” https://www.buzzsprout.com/1125110/12468460
You’ll have to pardon me if I fail to believe that someone from The Fed is giving us unwashed masses the full scoop.
Another spin is that this all just social media hype and we can blame Gen Z for this, too. 😣
“This is ‘the first bank crisis of the Twitter generation,’ Paul Donovan, chief economist at UBS Global Wealth Management told CNBC. Social media, mobile banking and enhanced regulations mean that a financial crisis today would look very different from 2008. Social media not only allows rumors to spread more easily, but also much faster.” -https://www.cnbc.com/2023/03/27/the-first-bank-crisis-of-the-twitter-generation-the-pressure-on-banks-is-very-different-to-2008.html
How’s THAT for generational clickbait? It’s like a damn episode of Scooby Doo. “Those darn kids and their darn Twitter thingy! They’re out here causing a bank collapse.” It can’t be because the system itself is corrupt and rigged and a giant hot mess of cronyism. No way! It’s gotta be those darn youngsters and their gossip on the interwebs.
“Peter explained that the 2008 financial crisis was due to the Fed holding interest rates artificially low at 1% from 2002 until late 2004. That gave rise to a proliferation of adjustable-rate mortgages, zero-doc loans, no money down, and all kind of other crazy lending schemes. This ultimately blew up the real estate bubble. Predictably, a lot of those loans went bad when the Fed started normalizing rates. (It eventually got rates to a peak of 5.25% in 2006.) That precipitated the 2008 financial crisis.
The government and the Fed managed to cut the financial crisis short with zero percent interest rates and quantitative easing. Then it left rates at zero for more than a decade.” -Schiff Gold, Ibid.
If that wasn’t clear enough, his speech in the sequel remains one of my favorite distillations of the nightmare we saw in ’07 and ’08:
Someone reminded me the other evening that I once said, greed is good.
Now it seems it’s legal!
But folks, you know it’s greed that makes my bartender buy three houses he cannot afford with no money down. And it is greed that makes your parents refinance their 200,000 dollar house for 250K, and then they take that extra 50K and they go down to the shopping mall and they buy a plasma TV, cell phones, computers and an SUV. And hey, why not a second home while we are at it. Because, gee whiz, I mean we all know the prices of houses in America always go up. Right?
And it’s greed that makes the government of this country cut the interest rates to 1% after 9/11 so we can all go shopping again.
They got all these fancy names for trillions of dollars of credit, CMOs, CDOs, SIVs, ABSes. You know I honestly think there’s maybe only 75 people in the world who know what they are.
But I’ll tell you what they are, they are WMDs. Weapons of mass destruction.
When I was away, it seemed that greed, got greedier. With a little bit of envy mixed in. Hedge fund managers just walking home with 50 to 100 million bucks a year.
So Mr. Banker, he looks around and he says, “My life looks pretty boring!” So he starts leveraging his interest up to 40%, 50% to 100%. With your money, not his. Yours. Because he could. You are supposed to be borrowing, not them!
And the beauty of the deal: no one is responsible. Because everyone is drinking the same Kool-Aid.
Last year, ladies and gentlemen, 40% of all corporate profits came from financial services. Not production, not anything remotely to do with the needs of the American public.
The truth is we are all part of it now. Banks, consumers, we’re moving the money around in circles. We take a buck, we shoot it full of steroids and we call it leverage. I call it steroid banking.
Now I have been considered a pretty smart guy when it comes to finance, and maybe I was in prison too long, but sometimes it is the only place to stay sane, and look out from the bars and say, hey is everybody out there nuts?
It is clear as a bell to those who pay attention. The mother of all evil is speculation. Leverage debt. The bottom line: it’s borrowing to the hilt. And I hate to tell you this, but it is a bankrupt business model.
It won’t work. It is systemic, malignant and it’s global. Like cancer. It’s a disease. And we got to fight back. How we going to do that? How we are going to leverage that disease back in our favor?
Does any of that sound like history has repeated? Does it also sound like we’re experiencing the fallout of what he’s describing?
Has anything changed to make you feel more confident in the system?
“The Fed has made far more monetary mistakes since the 2008 financial crisis than prior. And so, it has inflated a much bigger credit bubble. Now the banks are in far worse shape than they were in 2008, especially the ‘too big to fail’ banks that we bailed out and are now much bigger than they were back then and even more insolvent. So, as a result of what the Fed has done after the 2008 financial crisis, this new financial crisis that just got started will be much worse. And my fear, which is already being validated by last week’s balance sheet, is that this crisis is going to be so bad that the Fed is going to pull out all of the stops and print as much money as possible to bail everybody out. Then the inflation that we saw in 2021 and 2022 is just the tip of a huge iceberg and we’re going to be looking at double-digit inflation rates as far as the eye can see.” -Schiff Gold, Ibid. emphasis mine
If The Fed goes back to QE, which it could (if it hasn’t already), we’ll see more inflation. If The Fed prints up more money for bank bailouts (and God knows what other bailouts), we’ll see more inflation.
Now imagine inflation + rampant unemployment. I know we’d rather not, but I think it’s better to be prepared for any contingency at this point.
“Peter also talked about the insolvency of the FDIC. It doesn’t even have enough money to cover deposits up to $250,000 as promised. Peter pointed out that during the Great Depression when there was no FDIC, people only lost about 2% of their deposits, even with all the bank failures.
‘The banking system was much sounder before we had an FDIC than it is now. Because back then, banks had an incentive to be responsible because their customers held them accountable. But now there is no accountability.'” -Schiff Gold, Ibid.
The system needs to benefit the fat cats and their pals, not you and me. If we get steamrolled, we’re just easy collateral damage, baby.
“All of this raises a bigger question: where is the government going to get the money for this?
‘That’s just another unfunded liability that has to be piled on top of a massive unfunded debt on top of the funded debt that’s unpayable already. So, it’s all going to be inflated away. That’s what people have to worry about. Everybody’s bank account is at risk because inflation is going to destroy the purchasing power of your money. It doesn’t matter if your bank fails because the money that you deposited in the bank, that’s going to fail.'” -Schiff Gold, Ibid.
I’d guess some will come from taxpayers, some will come from the magical money printing machine:
“It’s almost like alchemy! You can create money out of thin air if you’re at the central bank.” -Richard W. Fisher, former President & CEO of the Federal Reserve Bank of Dallas in Age of Easy Money
and the rest will come from God knows where. Personally, I don’t think all of these billions and trillions of dollars the state has comes only from tax money. I think some of these cronies and NGOs scratch each other’s backs in private deals we never see.
Will the 2008/2009 sequel be worse? Or, in the case of 1970s era stagflation, will the sequel to that be worse? I dunno and I certainly hope not. But the thing is – I’m not looking to rely solely on hope.