Visitor publish from Jim Quinn on the Burning Platform:
“We’ve received robust 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 stated, our monetary establishments are robust.” – Henry Paulson – 3/16/08
“I’ve full confidence in banking regulators to take applicable actions in response and famous that the banking system stays resilient and regulators have efficient instruments to handle this sort of occasion. Let me be clear that throughout the monetary disaster, there have been traders and homeowners of systemic giant banks that had been bailed out . . . and the reforms which have been put in place means we’re not going to try this once more.” – Janet Yellen – 3/12/23
With the current 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 Looking for 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. In fact 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 Avenue 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 Avenue 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 Avenue safety crew let you know the banking system is protected and so they have it beneath management, they’re mendacity, simply as I stated fifteen years in the past.
“Our economic system and banking system is so advanced and intertwined that nobody is aware of the place the following shoe will drop. Politicians and authorities bureaucrats are mendacity to the general public once they say that all the pieces is alright. They have no idea. Must you imagine 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 steadiness sheet evaluation?”
Again within the days of The Huge Brief, earlier than the general public knew about poisonous subprime mortgages issued by felony bankers and packaged into derivatives given a AAA score by the grasping compliant score companies, the Wall Avenue cabal knew time was rising brief, however that didn’t maintain 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 in the present day.
There are numerous similarities between what was occurring in 2008 and what’s occurring in the present day. 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 same old suspects assured the nation this was a one off scenario and the banking system was robust. The Wall Avenue banks had been reporting big earnings as a result of they had been hiding the large losses on their steadiness sheets. In the event that they didn’t foreclose, they didn’t need to write-off the mortgages. The poisonous debt simply saved constructing.
In the summertime of 2008 the banks began to report losses, however assured traders it was solely a one time hit. All was nicely. The week I wrote my article Wall Avenue 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 lower by way of all of the BS being shoveled by the likes of Larry Kudlow, Jim Cramer, the Wall Avenue CEOs, and the supposed analyst specialists who nonetheless had purchase rankings on these bloated debt pigs. My evaluation was considerably opposite to the CNBC lies:
“I’d estimate that we’re solely within the early innings of financial institution write-offs. The write-offs will no less than equal the earlier peaks reached within the early Nineteen Nineties. If a big financial institution akin to Washington Mutual or Wachovia had been to fail, it will wipe out the FDIC fund. If the FDIC fund is depleted, guess who pays? 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 dying spiral and I noticed the writing on the wall:
“How lengthy will traders be duped into supporting this catastrophe? You possibly can ensure that the opposite suspects (Citicorp, Lehman Brothers, Washington Mutual) shall be asserting extra write-downs and capital dilution within the coming weeks.”
By the top 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. Which means 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 will not be a recipe for a banking restoration. Dwelling costs have one other 15% to go on the draw back.”
“The buyer is being compelled to chop again on consuming out and purchasing. The marginal gamers will fall by the wayside. Huge field retailers, eating places, mall builders, and industrial builders are about to seek out out that their huge growth 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 dwelling costs went down greater than 15%, not bottoming till 2012. This international monetary collapse introduced an finish to the massive field growth part, as many went beneath, and the survivors focused on their present shops. We entered the worst recession because the Thirties. Essentially the most fascinating half in going again to my 15 yr outdated article was the psychology of the gang revealed within the remark part. Regardless of my use of unequivocal details, I used to be branded a doomer, overly pessimistic, and an fool. Many commenters stated the Fed would save the day and it was time to purchase the dip. If that they had purchased the dip on the day of my article, they might have misplaced 44% over the following 8 months throughout a relentless bear market.
The query now could be whether or not the present scenario is best or worse than the scenario we confronted in 2008. There are some factual objects which can assist in assessing the place we’re. In August 2008 the nationwide debt was $9.5 trillion (67% of GDP). Right this moment it’s $31.5 trillion (130% of GDP). Complete family debt was $12 trillion in 2008 and stands at $17 trillion in the present day. The Fed’s steadiness 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% in the present day. GDP was rising at 3.2% in 2008, versus 2.7% in the present day. An neutral observer must conclude our financial scenario is much worse than 2008.
However all you hear is joyful speak and false bravado from Wall Avenue analysts overlaying their very own bancrupt business. They continually harp on the very fact mortgage lending is far more danger averse and safe. In fact the following liquidity pushed disaster isn’t pushed by the identical actual elements because the earlier liquidity pushed disaster. However the important thing elements are at all times the identical. Unfastened financial insurance policies by the Fed result in extra danger 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 attributable to Powell and his printing press.
To date, 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 danger and peddling unhealthy 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. Just about all the pieces is overvalued by 30% to 50% as a result of low-cost debt was out there to everybody for all the pieces. Extraordinarily low rates of interest led to excessive danger taking by bankers, companies, dwelling 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 danger managers at banks the world over have been concentrating on range and pushing woke agendas about transgender rights, local weather change and training ESG investing, they ignored the easy 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 this can be a regional banking disaster confined to smaller banks. This narrative is being spun by the massive Wall Avenue banks and their captured media mouthpieces, with the intent that depositors at smaller banks would panic and shift their deposits to the “protected” Wall Avenue banks. The reality is that the Wall Avenue banks have huge ranges of unrealized losses and desperately want deposits to maintain them from going through the identical destiny as Silicon Valley and Signature. These unrealized losses aren’t going away and must be realized within the close to future.
Credit score Suisse has been the loopy uncle of the monetary business, 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 component within the coming meltdown. However you will be certain they gained’t have a optimistic influence.
Each small and huge banks have little to no reserves left to lend. Debt issuance is the Potemkin ingredient in maintaining 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 unfavorable for 23 consecutive months. A banking disaster means banks will scale back lending dramatically. Shoppers have been compelled to reside 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. Shoppers are already pulling again and spending much less. With credit score drying up and spending taking place, employers throughout the globe will begin laying individuals off. As unemployment rises, individuals will cease paying their huge mortgage and auto loans. This may result in extra losses at banks, identical to 2008/2009.
Everybody will look to the Fed to save lots of the day. And they’re going to fake they’ve all the pieces beneath management, however they don’t. Again in 2008 their steadiness sheet was solely $900 billion. Right this moment it’s 9 instances as giant. 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 compelled to offer 4% or extra because of the Fed created inflation.
If the Fed slashes charges and goes again to cash printing by way of QE, the present 6% inflation price will skyrocket again to double digits. If Powell does nothing or continues elevating charges, the banking system will probably collapse. His selections are deflationary collapse or hyper-inflationary collapse. He’s caught between the proverbial rock and a tough place. Since he’s managed by Wall Avenue, he’ll slash charges, restart QE, backstop the bankers, and screw the typical American, as at all times. My conclusion reached in my 2008 article, simply earlier than the monetary system imploded appears, for essentially the most half, to use in the present day.
“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 attainable. They’re attempting to purchase time and prop up these banks to allow them to persuade sufficient fools to offer them extra capital. They may proceed to put in writing 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 typical 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 highway with a view 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 unhealthy debt and unhealthy banks, however we selected the improper path and can now undergo the implications described by Ludwig von Mises a century in the past.
“There isn’t a technique of avoiding the ultimate collapse of a growth led to by credit score growth. The choice is simply whether or not the disaster ought to come sooner as the results of voluntary abandonment of additional credit score growth, or later as a closing and complete disaster of the forex system concerned.” – Ludwig von Mises
My recommendation 15 years in the past on the finish of the article was to cut 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 closing piece of recommendation, which is as stable now because it was then:
“Whenever you see a financial institution CEO or a prime authorities official let you know that all the pieces is alright, run for the hills. They’re mendacity. They didn’t see this coming and so they do not know the way it will finish.”
We’re initially of the following international monetary disaster, not the top. Fourth Turnings don’t fizzle out. They construct to a crescendo of chaos and conflict. 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.
