Tag Archives: financial crises

If SVB is insolvent, so is everyone else, by Simon Black

Financial crises stem from too much debt and too much financial interconnection. From Simon Black at sovereignman.com:

On Sunday afternoon, September 14, 2008, hundreds of employees of the financial giant Lehman Brothers walked into the bank’s headquarters at 745 Seventh Avenue in New York City to clear out their offices and desks.

Lehman was hours away from declaring bankruptcy. And its collapse the next day triggered the worst economic and financial devastation since the Great Depression.

The S&P 500 fell by roughly 50%. Unemployment soared. And more than 100 other banks failed over the subsequent 12 months. It was a total disaster.

These bank, it turned out, had been using their depositors’ money to buy up special mortgage bonds. But these bonds were so risky that they eventually became known as “toxic securities” or “toxic assets”.

These toxic assets were bundles of risky, no-money-down mortgages given to sub-prime “NINJAs”, i.e. borrowers with No Income, No Job, no Assets who had a history of NOT paying their bills.

When the economy was doing well in 2006 and 2007, banks earned record profits from their toxic assets.

But when economic conditions started to worsen in 2008, those toxic assets plunged in value… and dozens of banks got wiped out.

Now here we go again.

Fifteen years later… after countless investigations, hearings, “stress test” rules, and new banking regulations to prevent another financial meltdown, we have just witnessed two large banks collapse in the United States of America– Signature Bank, and Silicon Valley Bank (SVB).

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On the Cusp of a Global Liquidity Crisis, by James Rickards

Recessions and liquidity crises are different animals, and you can have one without the other, although they often occur together. From James Rickards a dailyreckoning.com:

Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is “yes” and it’s coming quickly.

That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.

It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.

The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).

Sometimes an external supply shock occurs which causes a recessionary reaction. This happened after the Arab Oil Embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the Savings & Loan crisis in 1990.

Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end, and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy.

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Who Is Behind the Economic Collapse? By Dr. Joseph Mercola

The bankers always seem to get away scot-free. From Dr. Joseph Mercola at theburningplatform.com:

Story at-a-glance

  • The PBS Frontline documentary “The Untouchables,” which originally aired in 2013, investigates the cause of the 2007-2009 financial crisis, and why Wall Street crooks escaped fraud charges related to the sale of bad mortgages
  • Not one Wall Street executive was held accountable for this massive crisis, yet evidence suggests Wall Street executives with the willingness to defraud customers to pad their own bottom line were the cause of it all
  • The case against Bear Stearns and JP Morgan, basically summed up the core of the entire 2008 credit crisis: Banking institutions intentionally sold securities they knew were bad
  • The same criminal bankers are now intentionally destroying the global financial system in order to replace it with something even worse — social credit scores, digital identity and Central Banking Digital Coupons (CBDCs), which will give them the ability to control not only your individual finances but also everything else in your life
  • The financial crisis of 2008 showed us how incompetent they are. So why would we accept the “new and improved” financial system they intend to roll out as soon as the current financial system is in shambles?

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It’s possible the decline has already begun. . . by Simon Black

It is quite possible the stock market has already put it a top that will stand for many years. From Simon Black at sovereignman.com:

October can be an unforgiving month.

The terrible stock market crash that signaled the beginning of the Great Depression was in October of 1929.

The stock market crash known as Black Monday was in October of 1987.

In 1997, the Asian financial crisis sparked another stock market crash in… you guessed it—October.

And back in 2007 at the height of the giant bubble that almost brought down the entire financial system, the stock market peaked once again in… October.

It’s not that October is particular cursed. Maybe it’s just a coincidence. But I do find it strangely ominous that asset prices seemed to have peaked last month (October) and have been in decline ever since.

Real estate prices are starting to show signs of strain; more than one-third of homes for sale had a large price cut in October– the most discounting in the past eight years.

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The stock market’s biggest bear unloads on the ‘economic Ponzi scheme’ he says will cause the next crash — and explains why this meltdown feels different, by Joe Ciolli

There are a number of troubling signs of underlying economic weakness that could make the next downturn one of the worst ever. From Joe Ciolli at msn.com:

When it comes to predicting a stock market crash, all roads lead back to the economy.

That’s why it’s so jarring to hear someone claim that today’s economic system is “dysfunctional,” which is what the world-renowned market skeptic John Hussman just did.

Hussman, a former economics professor who is now the president of the Hussman Investment Trust, is no stranger to such bearish proclamations, having made a name for himself by repeatedly predicting a stock market decline exceeding 60% and forecasting a full decade of negative equity returns. He has now turned his sights on the economy, which he says is setting the market up for unprecedented failure.

In a recent blog post, Hussman paints a grim economic picture, lamenting labor-market slack that has kept wages low, massive deficits being run by the market, and lopsided corporate profits he says favor high-income people.

To drive this point home, Hussman uses the chart below to show that wage and salary compensation are near an all-time low relative to gross domestic product. He notes that while it appeared to be rebounding, it has since faded.

a screenshot of a social media post© Hussman Funds

But perhaps Hussman’s biggest worry is how indebted consumers and companies have become as they’ve attempted to navigate a difficult economic landscape. In his experience, this instability can only end one way: with mass defaults and copious investor tears.

“The hallmark of an economic Ponzi scheme is that the operation of the economy relies on the constant creation of low-grade debt in order to finance consumption and income shortfalls among some members of the economy, using the massive surpluses earned by other members of the economy,” Hussman wrote in a recent blog post. “The debt burdens, speculation, and skewed valuations most responsible for today’s lopsided prosperity are exactly the seeds from which the next crisis will spring.”

Add this to past arguments from Hussman that investors are too complacent, and that adverse valuation and sentiment conditions are brewing ahead of a meltdown, and you get an increasingly well-rounded view of the hurdles facing the nine-year bull market.

‘This time feels different’

Even though investors have two relatively recent market crashes to which they can refer, Hussman says they’re largely ignoring that helpful historical precedent. They’re instead telling themselves that the same excesses and glaring issues that destroyed the market last time around don’t apply now.

His take can be summarized simply as: “Nobody learned anything from the global financial crisis.”

To continue reading: The stock market’s biggest bear unloads on the ‘economic Ponzi scheme’ he says will cause the next crash — and explains why this meltdown feels different