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McKinsey: Half the World’s Banks Too Weak to Survive Downturn
- richliss 7y agoAKA On behalf of our banking customers we're going to be advising that governments get ready to do another bailout.
- std_throwaway 7y agoIt amazes me how long and how slowly the value of our money can be eroded without casing a hard crash. This has been going on for over 100 years in the US. Money used to pay things used to be gold, then fully gold backed, then partially gold backed, then no gold but security backed, then securities are diluted more and more. The next logical steps would be that the central banks buy up the bankrupt economy and introduce social credit as currency which is backed by surveillance.
- IAmEveryone 7y agoYour "next logical step" isn't logical in any sense of the word. You're just recounting a few steps of history (that actually went along with increased stability of the financial system) and then suddenly suggesting it's a preamble to some scenario that's currently en vogue among the paranoid. "backed by surveillance" simply does not mean anything. At least not in the sense of "backed by" as used in those other cases.
- glangdale 7y agoRight, because everything was so much better when you could, for no particularly good reason, relate money to a marginally useful-to-jewellers-and-dentists soft metal. I suppose I shouldn't expect economic literacy on Hacker News, but the twist on the standard goldbug narrative ("social credit backed by surveillance") is at least original, if nutty.
- 5822130027 7y agoGold's uselessness / rarity is what makes it perfect as money. The dollars you hold in your wallet are not even useful as toilet paper. Its sole use is to store value - just like gold. Gold standard created the first motor, railway, steamships. More importantly, wages kept up with productivity, in fact as soon as you decoupled gold from money, wages stagnated.
- std_throwaway 7y agoI did not say that gold backed currency is better for everybody. I'm just amazed at the time span over which the dilution is happening. And I don't think that anybody can deny that our money is slowly losing its purchasing power.
- fjp 7y agoit is slowly losing purchasing power. That's called inflation and nobody denies it or is surprised by it. In fact what people are generally surprised about is how little inflation is has occurred in the USA compared to how much money has been pumped into the system via QE.
- glangdale 7y agoMainstream economic opinion is not particularly concerned by the fact that our money is slowly losing its purchasing power. There's a general consensus that a small amount of inflation is useful, although the reasons are pretty cynical (i.e. wage flexibility -> "it's easier to give someone a 0% raise under conditions of 2% inflation than it is to give someone of -2% pay cut under conditions of 0% inflation"). You might make the argument that making it psychologically easier for employers to hand out small 'in-real-terms' pay cuts is wrong in itself, of course, but that's another discussion.
- turk73 7y agoIt's not nutty to point out that the dollar is presently only worth $.05 what it was in the year the Federal Reserve came into being.
- notfromhere 7y agoThis makes way less sense than you think it does.
- IAmEveryone 7y agoThat's a cynical, conspiratorial, and woefully uninformed take on this. On the most basic level, what you're suggesting doesn't make sense: "getting ready for a bailout" doesn't imply any real action any government would take. If anything, being warned about financial instability will lead to an increase in requirements for banks: capital requirements might increase, M&A might become harder, etc. But those are the sort of changes banks would tend to hate, because they necessarily reduce their opportunities to make money. So I believe you're reacting to seeing "McKinsey", and it triggers you into running your conspiracy-themed sentence-generation Markov chain. In the process, it reveals that "government" and "finance" figure large as sinister agents in your belief system.
- roenxi 7y agoThe conversation around bank bailouts involves more money than the wealth of entire countries flowing through the financial system like a leviathan; so deep that we paddlers in the oceans of finance barely see the shadow. It is an excellent time to be cynical; and a great time to recognise that if anyone were ever to be tempted to conspiracy this is the sort of value that would tempt them. The woefully uninformed I'm not going to quibble on because agree with you on that point.
- anm89 7y agoI love this idea of words which have negative(or positive) connotations in someones belief systems triggering theme based sentence generation via markov chains. I feel like this is a bizarrely insightful take on how people actually think and respond to things.
- omginternets 7y ago>do another bailout. I know you're being tongue-in-cheek, but in theory, are governments even capable of doing another bailout? My understanding is that public debt in most Western countries (not sure about China/India) is through the roof. Other than printing money and risking a cataclysmic devaluation, what can be done?
- radiator 7y agoI hope it does not come as a surprise if I tell you that printing money has already been, since a long time and in great quantities, taking place. The cataclysmic devaluation part is the one they are working on postponing.
- omginternets 7y agoIndeed it does not. I'm just not clear on how one postpones a cataclysmic devaluation.
- QuesnayJr 7y agoWe had a big increase in the money supply after the financial crisis, and yet inflation remains stubbornly low. At some point one needs to recognize that there is more in heaven and earth, Horatio, than dreamt of in your philosophy.
- radiator 7y agoIf you acknowledge that there was a big increase in money supply, then there is nothing more needed to conclude that there IS inflation. Whether acknowledged by official narratives or hidden, does not matter: it is still there and cannot remain hidden forever. But can you explain why practically all Central Banks are recently worried about high asset prices? Are high asset prices the sign of a stubbornly low inflation, in your opinion?
- mywittyname 7y ago> Other than printing money and risking a cataclysmic devaluation The US government would need to print an insane amount of money to have a tangible devaluation impact. Even more so when the money creation is intended to offset deflationary pressures due to a economic contraction. Considering the GDP of the US is ~$20 trillion, I bet we're probably talking about $2-4 trillion of printed money, in addition to deflation offsets, over the course of a year before the noticeable market inflation occurs. That would be like spending the entire annual budget of the US military five times over.
- ismail 7y agoI am going to agree with sentiments posted by others. This has nothing to do with bailouts. I have not read the report though having read the article one thing is clear all the solutions mentioned in the article are services provided by Mckinsey. So rather than being about a bailout it is positioning their services
- SilasX 7y agoDepending on how you regard the Federal Reserve, it's already happening. The Fed has been making massive loans to banks that are unable to get overnight loans from other banks based on their portfolios. [1] The amount and duration reporting has been. Originally it was $53 billion planned for a few weeks [2], and now it's over $128 billion [3], lasting into next year. [1] https://news.ycombinator.com/item?id=21004068 https://news.ycombinator.com/item?id=21004068 [2] https://www.reuters.com/article/us-usa-fed-repo/n-y-fed-awards-54-85-billion-in-overnight-repos-idUSKBN1WG3WM https://www.reuters.com/article/us-usa-fed-repo/n-y-fed-awar... [3] https://markets.businessinsider.com/news/stocks/fed-repo-injects-billions-into-market-first-time-in-decade-2019-9-1028534289 https://markets.businessinsider.com/news/stocks/fed-repo-inj...
- toast0 7y agoIf nobody is willing/able to lend dollars overnight secured by borrowers' treasury notes as collateral, and the Fed steps in to lend, the problem is either there's not enough dollars around to lend or people don't trust the collateral. Since treasury notes are trading at normal interest rates in the overall market, it seems pretty clear it's a liquidity issue. The potential lenders in that market don't have enough dollars to lend (in part due to post-2008 regulations and post-2008 behavioral changes by those lenders). If it were easy to become a lender in the overnight market, you would see people swooping in to make nearly risk free loans for 8% (apr) overnight. The swooping would rather rapidly lower the interest rates back to near normal. The Fed has authority and ability to swoop in, and a desire to keep the interests low, so there you go.
- std_throwaway 7y agoWe can always make more money if we really want to. The economy might run out of oil, sand, gold, land, and willpower but it will never run out of money until the central banks stop the money supply or politicians cause a hard fault.
- jsjohnst 7y agoNo wonder you are hiding behind a throwaway, as you clearly don’t know what you’re talking about and are just posting mindless drivel. If you want to know the outcome of “we can always make more money” attitudes, look no further than Zimbabwe. In ~2007 they had a 50 cent paper note. ~6 months later a common paper note was $10,000,000,000. Just a short while after that, paper notes were being printed in one hundred trillion dollar increments. What could you buy with that $100T note? Basically not even something from a vending machine (aka worth less than 1 USD in value). Source: I have all the above paper notes from Zimbabwe and have read about the economic policies that led to the collapse of the currency.
- chatmasta 7y agoZimbabwe doesn’t have the US military backing its debt.
- rb808 7y agoSo if the economy gets bad its the job of the US military to invade something to get their resources?
- kevin_thibedeau 7y agoYes. It's like clockwork. The US is coming due for another war soon.
- AnimalMuppet 7y agoSure. That's why we kept Grenada's beaches, and Kosovo's industry, and Iraq's oil. Oh, wait...
- Merrill 7y agoProblems with weak banks are usually solved by merging them with stronger banks. It's the non-bank financial institutions that are more worrisome. Recall that Lehman Brothers and AIG were not banks.
- scribu 7y ago> Recall that Lehman Brothers and AIG were not banks. AIG was an insurance company, yes. But Lehman Brothers was an investment bank. From Wikipedia: > in 2008, Lehman was the fourth-largest investment bank in the United States
- formercoder 7y agoLehman was a pure investment bank and therefore the government refused to bail them out - they did not want to be the lender of last resort to an entity they could not regulate strongly. Once everyone saw this almost all of them converted to “commercial banks,” even Goldman, in order to receive bailouts. The exception is Jefferies, leaving them as the only bank on Wall Street with a balance sheet that lends over 6x ebitda.
- Merrill 7y ago"Investment banks" were only colloquially banks. They were not members of the Federal Reserve, not regulated by the Office of the Comptroller of the Currency, and not FDIC insured. Survivors became banks after the crisis, but in their place we now have lots of hedge funds, private equity funds, etc. that have grown large to do similar financial operations without bank regulation. https://en.wikipedia.org/wiki/Shadow_banking_system https://en.wikipedia.org/wiki/Shadow_banking_system
- TuringNYC 7y agoIn industry speak “bank” refers to institutions taking deposits and lending to a single entity — retail and commercial banks, not investment banks, etc Side note: AIG managed to get regulatory treatment as a bank via OTS by having a tiny tiny tiny retail banking operation called AIG Bank. OTS ended up being the primary regulatory of the overall entity! https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision
- turk73 7y agoThe US is doing QE in a big way right now, something is up. I am observing other late cycle signs as well. Suddenly tech hiring dried up in my city and there is a construction boom underway as though many construction permits were suddenly all approved in order to bolster hiring among blue collar workers who are further out on the edge financially.
- throwaway66920 7y agoI believe this is the actual article https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review-2019-the-last-pit-stop-time-for-bold-late-cycle-moves https://www.mckinsey.com/industries/financial-services/our-i... Broadly it seems to be less extreme than Bloomberg’s summary and more nuanced to particular conditions. I like how exhibit 6 is rotated to encourage reading it from either direction. Haven’t seen that before in charts.
- avs733 7y agoWell of course it's more nuanced. Bloomberg is about speed not MECE.
- ur-whale 7y agoexotic acronym is exotic.
- dfxm12 7y agoMECE Mango-eating computer engineers? No, that doesn't fit in based on the context clues...
- stakhanov 7y agoMutually Exclusive & Comprehensively Exhaustive. It's how to do bullet points according to McKinsey. They had to invent it in the 1960s because apparently by the 1960s no one at McKinsey was yet, you know, aware of the existence of centuries' worth of literature on formal logic. So they reinvented the wheel as far as that particular cultural achievement was concerened. Or the first millionth of it, to be more precise, and left it at that, because the rest of it would have no longer fit onto a single PowerPoint slide.
- TurkishPoptart 7y agoGod, these consulting companies are the _worst_.
- geodel 7y agoNot that I disagree. Its same pattern: half of the universities, most of liberal art colleges, 60% of IT companies, 70% of private Doctor practices and so on are too weak to survive next shock. The only sad part I see is nasty businesses like McKinsey is not fitting in any pattern of failure.
- sertorius 7y agoPrivate Doctor practices? How can they be vulnerable?
- talkingtab 7y agoNot an expert but the processing cost of insurance is supposedly very high. Question: how high compared is the cost of processing insurance on some meaningful basis?
- helpPeople 7y agoI don't agree on the private doctor practice. Source, married a dr Worst, worst case, the ~15k/yr in rent, ins, and software put a dent in profits, but if each visit is min 75$, you can figure out how hard it is to break even. Upper revenue is 200k+/yr
- toomuchtodo 7y agoReimbursement compression along with EHR/EMR requirements has seen a lot of practices acquired by large health systems.
- helpPeople 7y agoNot to get too bogged down with details, but this winter she is looking to change EMR systems. The current one is the most expensive/established EMR for her field. Rent is 12,000 dollars of expenses. EMR is almost trivial.
- 7y ago
- tuddle666123 7y agobut mckinsey work with the r0thshicl bankers to https://youtu.be/rGKBRacvasg?t=514 https://youtu.be/rGKBRacvasg?t=514 and they are justpeddling the gl0balist agenda...blah blah blah
- wayoutthere 7y agoYou're honestly not wrong; I've spent a lot of time working in the industry and consulting companies (specifically McKinsey, but all the audit firms are involved too) are the back channel for much of the high-level corruption in the world.
- tuddle666123 7y agohttps://youtu.be/rGKBRacvasg?t=1209 https://youtu.be/rGKBRacvasg?t=1209 gloablist agenda peddling professionally...we watch
- helpPeople 7y agoI look at 8 year automotive loans, and I wonder- who is about to get screwed. People with jobs at gas stations buying new $30k vehicles. Either inflation is about to get bad, and our parents/Grandparents lose big or deflation happens and young people are screwed. Are there any other options?
- seganddr 7y agoPeople stop with all the fear mongering and there's another decade of slow and steady growth.
- draw_down 7y agoAKA, it’s different this time.
- segmondy 7y ago$30k vehicles are cheap these days. My mouth dropped when I was at the auto show and seeing SUVs like navigator and escalade with price of $80k+
- mywittyname 7y agoThe median new car price is quickly approaching $40k. Probably 65% or so of new cars cost more than $30k.
- theandrewbailey 7y agoNavigators and Escalades are luxury SUVs. Of course those are going to cost a lot.
- buckminster 7y agoIn the UK in recent years there has been a big increase in lease-to-buy deals where the consumer can return the car and walk away. The car finance companies seem to be in the riskiest position.
- dawg- 7y agoAnd if you're a bank, guess who is conveniently standing by ready to fix it for you with an army of $2000 an hour consultants? McKinsey. Same exact scam as the shady mechanic who wants charge you $400 to flush your transmission fluid and convinces you that your car will surely blow up if you don't do it.
- rchaud 7y agoThe difference is that in most cases, the shady mechanic is not somebody you already know from college, or from golf or your national frat society. McKinsey gets paid ungodly sums in part because they are the archetype of the old boy's club. Their new hires usually come only from top business schools, and likely already have several years under their belt at the types of companies McKinsey gets business from. In addition to that, most banks already have several ex-McKinsey people on staff anyway. Boston Consulting Group are in the same tier. Back in college, BCG and McKinsey were the holy grail of employers for pretty much all Econ/Finance students who didn't want to go the IB route.
- jcomis 7y agoIt's still an old boys club, but it's more revolving door now. You flip between industry and consulting. Each move you bring a few with you who reward you later.
- baron_harkonnen 7y agoMy experience has been that the vast majority of McKinsey and BCG consultants have absolutely no real world experience. My company has been hiring these people for internal roles in droves and it's hilarious (and depressing) to watch how useless they are when they can't just leave after dropping some nice sounding but useless solution on someones desk.
- ur-whale 7y ago>My experience has been that the vast majority of McKinsey and BCG consultants have absolutely no real world experience And one of these drones currently runs Google :(
- twh270 7y agoMuch, possibly most, of the economic value in a downturn comes from weeding out the weaker companies -- through bankruptcy, acquisition, or restructuring/pivoting. I well remember the "dot com" crash. It wiped out tons of companies that had no business existing (pardon the pun). (Of course when it comes to banking, that can be a bit of a special case as we've witnessed multiple times.) And yes, downturns are hard on people, and this is why a social safety net is invaluable. Gives them time to find a new job, or retool their skills, or otherwise adjust. And I don't pretend that's easy either.
- ur-whale 7y agoI believe the consecrated term is "creative destruction"
- lepetitpedre 7y agoSadly, regular taxpayers will pay the bill. Just like last time.
- dmix 7y agoOnce again completing the cycle of moral hazards in the name of reducing the "impact" of rescissions in the short-term. The only metric that apparently matters.
- QuesnayJr 7y agoIn the last recession, unemployment in the US reached 10%. How big does unemployment have to reach before you take the quotes away from "impact"? 15%? 20%? Unemployment in Spain reached as high as 26% because Spain was unable to reduce the impact.
- dmix 7y agoThe unemployment rate is the short term metric which is exactly what I’m taking about. A long term perspective means preventing future recessions too, not just fixing the short term problems. Creating new moral hazards, negative incentives, behaviour and careers which would have been tarnished and discredited normally are allowed to continue, often with the same people and companies. If we were serious about preventing recessions our policies should not only be measured in how they deal with the fallouts but also addressing the things that cause it in the first place, and balancing what’s lost by not letting the markets naturally correct themselves.
- QuesnayJr 7y agoWe've had recessions for the entire history of capitalism, under a large number of legal regimes. We had recessions back when banking was much more tightly regulated. We had recessions under laissez-faire. Recessions are endemic to the system. Our choices are either "combat unemployment" or get ready for socialism to finally win the war of ideas.
- Apocryphon 7y agoI wonder how credit unions would fare.
- olivermarks 7y agoMcKinsey & Accenture could do with some anti trust investigation at this point, they have too much of the outsourced brain work and strategy of important western firms executed in a cookie cutter way that then exploits the inside knowledge for future projects. This banking prediction is an example of this type of thinking. McKinsey are the problem not the solution
- TuringNYC 7y agoSerious question: could you cite some Accenture projects with serious brain work? They are typically in the systems integration category while MBB (McKinsey Bain BCG) get the prestigious work.
- olivermarks 7y agoI meant Accenture in the context of executing McK (& BB) projects in a closed loop. MBB & Deloitte are pretty short on 'serious brain work' and long on copy and paste of their own and others work in my recent experience
- StreamBright 7y agoMcKinsey, the ultimate power point company. They also nobody got fired for hiring them. I could not believe this reasoning but it exists. We tried to solve problem X but even McKinsey failed. This problem is declared unsolvable now.