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Reasons the banking crisis isn’t a repeat of 2008

155 points by s-xyz 4y ago

pnemonic 4y ago
Serious question: Is it a good idea (ever) to trust a bank's take on a financial crisis?
- baldeagle 4y ago
  Once you acknowledge their bias, they do know an awful lot about banking.
  - deleted 4y ago
    [deleted]
  - smcin 4y ago
    Well, their selective take is like a description of a mass shooting that only describes where the bodies ended up, but no discussion of who caused it, or even that bullets might have been involved, let alone which people actually did it: "Households had too much leverage in 2008 : Mortgage debt % potential GDP..." "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis." Drink one finger very time you find a bank mentioning the Glass-Steagall Act, and ten bottles every time you find them admitting they lobbied Congress hard to repeal it. [0] "Why didn’t any Wall Street CEOs (or executives) go to jail after the financial crisis?" (also a list of criminal and civil charges, and which banks got fined) [1] ...and here's some shameless revisionism by Cato [2] ("It wasn't the banks [being allowed to issue the CDOs], it was the securities salesmen who spontaneously invented and sold CDOs"). I must remember that compelling excuse if I ever get busted running a casino in my own living-room. > "In any case, the 2008 financial crisis had precious little to do with Glass‐Steagall, one way or the other. It was caused primarily by bad lending policies, which in turn led to the growth of the subprime market to an extent that neither the lawmakers nor regulatory authorities recognized at the time. The commercial banks and parent holding companies that failed — or had to be sold to other viable financial institutions — did so because underwriting standards were abandoned." [0]: https://blogs.law.ox.ac.uk/business-law-blog/blog/2018/11/death-glass-steagall-was-carefully-planned-and-highly-consequential https://blogs.law.ox.ac.uk/business-law-blog/blog/2018/11/de... [1]: https://features.marketplace.org/why-no-ceo-went-jail-after-financial-crisis/ https://features.marketplace.org/why-no-ceo-went-jail-after-... [2]: https://www.cato.org/policy-analysis/repeal-glass-steagall-act-myth-reality# https://www.cato.org/policy-analysis/repeal-glass-steagall-a...
    - JumpCrisscross 4y ago
      Glass-Steagall’s repeal wasn’t proximate to any post-repeal banking crises. (Glass-Steagall wouldn’t have prevented mortgage CDOs.) It certainly wouldn’t have done anything for SVB or Signature.
      - smcin 4y ago
        Re Glass-Steagall and 2008 crisis, Robert Reich and Elizabeth Warren disagree with you [https://robertreich.org/post/124114229225 https://robertreich.org/post/124114229225]. According to you, which legislation prevented the conflict-of-interest in banks writing trillions in subprime mortgages decades prior to 1999? or securities firms selling CDOs backed by subprime MBS? IIUC, the issue in 2008 was never "preventing mortgage CDOs" outright, but preventing the inflated valuations on junk tranches of subprime, i.e. mortgage lenders allowing securities sellers to intentionally create and sell junk with their assets. (and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)
        JumpCrisscross 4y ago
        > Reich and Elizabeth Warren disagree with you They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense. As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees. > securities firms selling CDOs backed by subprime MBS Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall. Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.
  - Broken_Hippo 4y ago
    Once you acknowledge their bias, they do know an awful lot about banking Sure, but I really don't. And a lot of other folks are the same. I know they are both biased and have financial incentives to lie or mislead me. As much as I might try, I know I might not be able to parse out the bullshit from the facts. Those facts are gonna stink of the bullshit even if I can verify it. At least with something like a plumber, I can get a second opinion and so on, and I might just be able to take care of the issue myself instead. This just isn't the case with a bank.
    - fijiaarone 4y ago
      Funny, nobody is talking about Bitcoin or Decentralized Finance as a solution (or even a hedge) to this problem.
      - htss2013 4y ago
        Ummm, they are? See Balaji's million dollar bitcoin bet.
- hifromLA 4y ago
  Honestly this article seems pretty reasonable for the most part. Source matters, but content matters the most imo.
  - junofan 4y ago
    One big issue is ignoring causality and hindsight. E.g. author contrasts “low quality” assets of 15 yrs ago with today’s “high quality” assets, ignoring the fact that asset quality was apparent only in hindsight.
- kiernanmcgowan 4y ago
  In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.
  - ipv6ipv4 4y ago
    A software engineer usually doesn't have a financial incentive to lie to you.
    - ununoctium87 4y ago
      Hey, some of us are passionate about paying rent and bills
      - DennisP 4y ago
        Generally I think you'll find it easier to pay rent if you provide accurate reasons for slow sql queries.
        marginalia_nu 4y ago
        Eeh https://thedailywtf.com/articles/The-Speedup-Loop https://thedailywtf.com/articles/The-Speedup-Loop
    - CatWChainsaw 4y ago
      And yet upon reading your comment I immediately thought, "They 'trust me'. Dumb fucks."
    - deleted 4y ago
      [deleted]
  - earleybird 4y ago
    Until you find the devs take on why the SQL query is slow is a hallucination in the LLM sense.
  - 4y ago
- varelse 4y ago
  [dead]
JumpCrisscross 4y ago
I’m a quarter way convinced mid-sized banks’ stock shouldn’t be publicly traded.
- maxbond 4y ago
  Why is that?
  - JumpCrisscross 4y ago
    Our equity markets have always been weird, but they’ve gotten weirder in recent years. For most businesses, that volatility is fine. Customers of e.g. Nike aren’t checking its stock price before buying sneakers, and it mostly has enough cash on hand to conduct business if creditors get spooked. Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. We’re practically seeing it play out again with Deutsche Bank. Public ownership lets these banks access cheaper capital. But the operational effects of volatility make it seem a bad deal. For the largest banks, if closely supervised, I can see the risks balancing. But for mid-sized banks I don’t.
    - drexlspivey 4y ago
      > Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. You have the cause & effect wrong, the stocks tanks because the bank is failing. Tons of banks that are not publicly traded fail too.
      - JumpCrisscross 4y ago
        > stocks tanks because the bank is failing In this cycle, Signature and Credit Suisse's stock slides preceded their banking panics. The proximate causation flowed from equity prices, to CDS, to deposits. (The ultimate causation stemmed from a general insolvency. But that's not unique to Signature over its privately-held counterparts.)
meltyness 4y ago
To summarize: "Policymakers have tools to solve banking crises [...]" With TARP/EESA still in place Fed/Treasury have more power "The economy is in a much different place" XLK has subsumed XLF since 2008 "The magnitude of the problem is, so far, much smaller" Look forward to my upcoming essay "Casting doubt on the commercial real-estate economy" In conclusion, "we still don't see it coming" avoiding the term, "subprime" or acknowledging that predatory lending ever occurred, and this weird typo: "[...] the primary facility *though* which banks can borrow [...]"
GrumpyNl 4y ago
Banking will only change when we keep the management fully responsible. The bank goes bankrupt, the management goes bankrupt, see how they will gamble with your money then.
- deleted 4y ago
  [deleted]
mabbo 4y ago
Okay did anyone else get tricked by that websites dark pattern? We've all been trained to not even look at the "do you accept cookies" thing anymore and just blindly press it. On this website, it's actually an ad link to their paid services that looks just like one of those accept cookies buttons.
- corndoge 4y ago
  At least some of us do bother to click "set preferences" and set all the cookies to off. If you are a habitual cookie clicker there is also this: https://addons.mozilla.org/en-US/firefox/addon/istilldontcareaboutcookies/ https://addons.mozilla.org/en-US/firefox/addon/istilldontcar...
- avodonosov 4y ago
  I always reject
fyzix 4y ago
History never repeats itself, but it does often rhyme. We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008. There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade. PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...
- notch898a 4y ago
  >There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed knows this. They should make it explicit to the common, ~100 IQ, joe six pack American. It's infuriating watching them act so carefully as to pretend to try and not spook anyone.
  - fijiaarone 4y ago
    You’re making the weird assumption that the people at the Fed have greater than 99 IQ, or any desire at all to learn about the effects of their monetary decisions other than their own short term personal gains. And there is no indication of either of these suppositions.
- e_i_pi_2 4y ago
  I nice twist I heard recently - it's more like a song, and I'm getting really tired of going back to the same chorus over and over again
- vkou 4y ago
  > The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade. How on Earth is providing short-term liquidity[1] until the long-term low-yield bonds owned by those banks mature translates into double-digit inflation? And why should we listen to this [2] prediction of double-digit inflation? [1] At least in the US. Switzerland is doing its own thing with the UBS/CS merger, good luck to those folks, that sounds like a fun garbage dump to dig through. [2] Similar comments predicted 15 of the past ~1 years of double-digit inflation.
choiway 4y ago
Just because a cookie doesn't crumble the same way doesn't mean the cookie isn't crumbling.
yieldcrv 4y ago
adding liquidity via “policy maker’s tools” doesn't fix the problem or provide assurance that Credit Suisse isn’t the beginning of something else CS AT1 bondholders now have gigantic $17bn hole in their balance sheet/portfolio The whole AT1 bond market is experiencing losses of similar size to the treasury bond market If anybody collateralized those? Bigger losses Losses aren't controversial, but they are when theyre losses with other people’s money who arent investors
- ororroro 4y ago
  AT1 bonds are specifically designed for this purpose though. They offer high returns but at a higher risk. How would one collateralize an asset that is designed to default catastrophically while hiding this fact from the lender?
naveen99 4y ago
Credit suisse looked more like 2008. Svb, frc not so much.
fintechie 4y ago
Of course isn't a repeat, it's just another flavour with similar consequences: bailouts, money printing, rampant inflation, credit crunch, and so on. No matter the language acrobatics and fancy terms used to describe it.
- tzs 4y ago
  Where was the "rampant inflation" from 2008? I don't see it here [1]. [1] https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi https://www.macrotrends.net/countries/USA/united-states/infl...
  - spaceman_2020 4y ago
    Chart assets instead of prices and you’ll see it. This has social and political consequences. Populists haven’t started popping up across the western world for no reason. Half the country feels priced out of basic dignities like housing.
    - pixelfarmer 4y ago
      That is because housing is coupled to the stock market. Stock market and real economy are two different things by now, or should be treated as such conceptually.
      - spaceman_2020 4y ago
        Try telling that to someone in the bottom 50%ile. “Sorry that you’ll never own a house - our free money policies have decoupled the real economy and stock market. Now get back to work.”
photochemsyn 4y ago
JPMorganChase bought Bear Stearns for $2 a share in 2008, but this is entirely unlike UBS acquiring Credit Suisse this past week? https://www.nytimes.com/2008/03/17/business/17bear.html https://www.nytimes.com/2008/03/17/business/17bear.html Credit Suisse shareholders were paid in shares of UBS, in a major value writedown, quite comparable to the JPMChase deal for Bear. Certain select shareholders (Saudi Arabia and Qatar) seem to have been protected while others (AT1 bondholders) were not. Patrick Boyle's YT channel is doing a great job on this, first became aware of it during the SBF spectacle, just as good now: https://youtu.be/hV0gpO1B6tU https://youtu.be/hV0gpO1B6tU > "UBS was clear from the very start that they would only participate in the deal if it was cheaply priced and if UBS could be indemnified from any of the legal issues that Credit Suisse was potentially facing... 'This is no bailout', the Swiss finance minister said, 'This is a commercial solution'" So the difference is what, it's more globalized this time around? Note that indemnity provision was likely informed by fallout from the JPMChase deal for Bear, see this 2013 Reuters Blurb: > "New York state’s lawsuit against JPMorgan Chase & Co. alleging fraud in mortgage-backed securities sold by Bear Stearns may be one of the broadest cases to come out of the financial crisis..." It seems quite familiar. Investment capitalism goes belly up once again due to short-sighted greed and a lack of regulation, and the government steps in to cover the losses for the fearless risk-taking entrepreneur class (who have bought most of the politicians) in what certainly looks like an 'entitlement program'... while libertarians everywhere remain curiously silent. Con artist much? Social safety nets for the billionaire investors are needed to prevent societal collapse, it seems. But who cares about all the homeless encampments, they should have learned how to program... it's their own fault, and people need to take responsibility for their actions...
dalbasal 4y ago
It feels like all the content here is subtext... so I guess I get to do Philology. These are the given reasons: | this probably isn’t 2008, for three key reasons: (1)Policymakers have tools to solve banking crises, (1.5) and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller | His take on reason #1 is that MMT has won. Monetarism is over now. Dollars in the bank are dollars in the Fed and these are infinite. They're still pretending in the rhetorical, political and legal sense... but the policies are not that anymore. The Fed can, if it wants, increase rates but as it does it will fully back banks. Banks are no longer limited by the value of securities on their books. This is now known not to cause hyperinflation, and regular inflation is either tolerable or someone else's job. reason #2 - For Non-banks like a company with a loan or a human with a mortgage, "Monetarism is dead" means nothing. They're affected by rate increases and can run out of money and get wiped out. Luckily, debt is not super high like it was in 2008. He charts household debt, but I think the bigger "story" is company debt. Google, Amazon, even Tesla are all about equity. They're don't care about interest rates. Reason # 3 needs no commentary: "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis. This episode has been driven by price declines in high-quality assets with pristine disclosure leading to a liquidity issue."
- cultureswitch 4y ago
  Money started out fictional, we're just taking our sweet time mentally recovering from around a millennia of thinking metal and money are the same thing. Turns out, the real nature of money is debt. And debt is just a relation between people, so there's no natural limit to it, other than confidence.
- spaceman_2020 4y ago
  It’s so short-sighted to say that inflation is “tolerable”. Since 2008, the real inflation has been in asset prices - housing, equities, startup valuations have been up massively across the board. This has societal consequences. The divide between the asset owning class and the non-asset owning class has never been greater. Stretch that out and you get populists getting elected all over the world. Donald Trump didn’t get elected in a vacuum.
qwertyuiop_ 4y ago
That’s what they said last time and the time before that.
Avshalom 4y ago
It aint fucking lost on me that financial papers spent the better part of 2022 arguing that we were headed for a recession. The q4 numbers came in showing the US economy was still expanding and now those same papers are telling me we're in a banking crisis on the basis of like two and a half banks, with SVB and CS both being fully rescued. The fucking owners of capital seem bound and determined to destroy their own system.
- chiefalchemist 4y ago
  > The fucking owners of capital seem bound and determined to destroy their own system. Nah. These disruptions are a means to an ends. That is, shifting still more wealth to the top. Follow that graph. Everything else is a means to that ends or a distraction.
  - oblio 4y ago
    I hate all these conspiracy theories. And you know why? It's because they imply hubris, arrogance, control. Let's just realize that we all have a lot less control over our environment than we think we do, and some things are just forces beyond anyone's control.
    - Avshalom 4y ago
      I mean hubris and arrogance are in full and open display pretty constantly. The inability to actually control shit is why its always a moving target. but the idea that rich people are acting in a manner to maintain/increase their wealth aint exactly a conspiracy theory.
      - oblio 4y ago
        > but the idea that <<people>> are acting in a manner to maintain/increase their wealth aint exactly a conspiracy theory. This is the correct statement and it's not a conspiracy theory, it's a banality.
        4y ago
49erfangoniners 4y ago
Lol thanks chase
alxmng 4y ago
Who cares about keeping deposits safe when money isn’t worth anything? Americans don’t even have money in the bank. Median savings is $4500. Many people who perform socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation.
- mym1990 4y ago
  Ah but we have a solution to that: its called going into a crippling amount of debt which one will never be able to pay off, which will guarantee a revolving door leading right into the bank's pocket book!
- LoganDark 4y ago
  > Americans don’t even have money in the bank. Median savings is $4500. > Many people who materially contribute by doing socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation. I... hate that this is so accurate...
- arcticbull 4y ago
  My money still seems to work great. Those are some serious fiscal and social (but not monetary) issues that should be taken up with Congress not the Fed, and not the FDIC. Who handled this all very well I might add. > Median savings is $4500. The average American family has a $748,000 net worth, according to Federal Reserve data, median $121,000. Savings isn't just what's in your 'savings' account. Mine definitely isn't. Money is a medium of exchange and unit of account. It's not a tool for building wealth, and it's not a long-term store of value. It never was. They shouldn't have money in the bank, they should have it productively invested.
  - deleted 4y ago
    [deleted]
  - klyrs 4y ago
    By your numbers, the median American family could put their entire net worth towards a cramped condo and still be making payments. That is not the image of stability that you're pretending it is.
treebeard901 4y ago
In 2008, the Treasury and Federal Reserve had a ton of ammo to use to provide liquidity. Since then, they have tried to inflate their way out of it using creative accounting and quantitative easing. The reason this could be worse than 2008 is that those methods will not work as well. Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc. When they tried to sell it to provide liquidity for deposits they found there were not many buyers for it. Since 2008, foreign purchases of long term debt have dropped from many of the main credit countries with no real replacement other than the federal reserve. If the Fed moves from a buyer of last resort to the only buyer then that is game over. QE won't help because it will cause inflation. Inflation will move people, foreign countries and institutional investors away from long term debt. Basically a hyperinflationary environment with systemic bank failures all caused by a sovereign debt crisis. Before long just funding the Govt will be impossible because the debt will no longer be seen as safe as it once was. The difference is that the collapse won't be as immediate as 2008. It can be much more of a controlled demolition, until the methods they have used stop working. It all just has to collapse at some point and reach an equilibrium again. It's only a matter of time...
- Retric 4y ago
  Banks don’t have nearly as many worthless assets today as they did in 2008, which completely changes the underlying economics. As long as they aren’t offering higher returns than their existing investments can support, the only thing they have to fear is bank runs.
  - fuoqi 4y ago
    SVB also did not have "worthless assets", but the extreme rate hikes by the Fed significantly reduced its value. Wait until tightness of credit conditions will cause chain of defaults and we will see how well banks will fare. We already see the first signs of it in the auto loans market.
    - Retric 4y ago
      SVB was offering both extremely high interest rates and suffered a bank run. Thus they both really messed up and happened to get punished, but it really doesn’t reflect the wider banking system.
paulpauper 4y ago
It helped greatly that the fed acted so fast. Had nothing been done it would have been way worse. Even Charles Schwab even was down 20% on Monday ,and this was after the bailout. Things were getting really scary.
hayst4ck 4y ago
The primary function of central banks isn’t managing inflation and employment, it is acting as a lender of last resort. In this way, central banks provide the bedrock for the banking system. The Fed’s ability to perform this role expanded during the Global Financial Crisis. They created many different types of lending facilities to provide liquidity to banks, and many former broker-dealers (like Morgan Stanley and Goldman Sachs) became bank holding companies so that they could access them. Am I crazy or was there an entire section that said "this isn't a crisis because the fed is happy to give banks that make poor investment decisions taxpayer money?" Doesn't this say that when a bank makes a poor investment, they can borrow from the taxpayer so they don't have to realize their loss?
- fells 4y ago
  The fed doesn't have access to taxpayer money.
  - horns4lyfe 4y ago
    They absolutely do. They print money, and the resulting inflation is an indirect tax; the glory of MMT.
  - hayst4ck 4y ago
    Does that mean that instead of giving taxpayer money, they instead devalue all taxpayer money by inventing new money?
    - zx8080 4y ago
      True. There's option to export a newly created inflation to other countries, at least partially. Thus, steal from other countries' citizens and taxpayers.
    - mullingitover 4y ago
      Honestly, it's a good thing. Given how dysfunctional the legislative branch is with fiscal policy I can't imagine a worse idea than putting it in charge of monetary policy as well.
deleted 4y ago
[deleted]
fuoqi 4y ago
I wonder about the end-game effect of the BTFP. Great, today banks got enough liquidity thanks to the Fed, but after 90 days they have to return borrowed funds together with a relatively high interest and get back semi-worthless paper (because selling it will result in realized losses). In 90 days credit conditions probably will be even tighter than today and a lot of people will flee to the too big to fail banks. How we expect small/mid banks to stay stable after that? And I don't even want to touch the question of fiscal deficits, which not only do not show signs of moderation, but accelerate even further. It either ends in a real default, or persistent high inflation, with negative real rates, which in a sense is also a default.
- nopassrecover 4y ago
  The BTFP has a one year term compared to the 90 day discount window. You’re completely right about still being stuck with the low yield paper at the end of the year and the relatively high (to the paper) interest rate in the meantime (my read is that the banks continue to hold the paper and get the yield over the year rather than handing it over to the Fed, partially offsetting the interest cost, but I’m uncertain if that’s correct). For that reason my speculation is the BTFP will be rolled over to keep kicking the can down the road at least until the proportion of debt sitting in long-term low yield held to market assets decreases (basically via the bank version of dollar cost averaging as they buy new treasuries/MBSs over time) or interest rates drop sufficiently that the haircut on their current low yield assets meaningfully reduces. The interest rate charge by the Fed right now is effectively making the bank realise the haircut on their paper over that year while keeping up the illusion that their assets are still worth par value. This gives the banks the liquidity they need without having to write down the value of all their HTM assets as they would have to do if they actually sold any. In reality this also means those balance sheets, assuming conditions continue rather than return to ultra low inflation (or deflationary) conditions, are overstated. The FDIC suggests this is by around $620bn for US banks which is smallish compared to the total US banking assets of $23,245bn but sizeable when you consider the sector has “only” $2,175bn residual assets after liabilities and imagine the distribution of unrealised losses against net positions across different banks. With that said, the interest payments of leveraging the BTFP will presumably add to liquidity pressure, while even banks not using the facility but holding low yield HTM assets will be feeling the squeeze of needing to pay depositors current interest rates backed by a portfolio weighted down by low yield paper. For that reason if things worsen it wouldn’t surprise me if the Fed dropped the interest rate fee for BTFP towards the average yield of the pledged paper, effectively turning low yield paper into current yield assets and pretending 2020-22 never happened while shoring up the profitability of banks that managed their way healthily through this saga. What I find a little confusing is how commentators seem to think there’s no problem because banks can hold/could have held these assets to maturity and get back the par value then - that the problem is simply that people wanted their money back at the wrong time. I guess that’s true in the strict sense of “why now” but unless conditions change again the unrealised loss will be realised eventually - either in one hit by conversion to today dollars or over time by inflation. The only way I can see this not being a problem is if banks were going to keep paying depositor interest rates as if it were 2021 until these low yield assets came to maturity, but the challenge of doing that without bailing in depositor funds over that time window when someone down the street will otherwise pay something closer to the current Fed rate seems obvious. It seems like the only game once yields rose was spinning plates and wearing the loss slowly hoping their portfolio sufficiently turned over in the meantime. As I see it in the simplest sense, a bunch of banks have traded 2021 dollars for Timeline A 2051 dollars, where Timeline A has 30 years of extremely low inflation. People have now asked for 2023 dollars back. But it turns out we now live in Timeline B where we’re looking at moderately low inflation over the next 30 years, and the value of a Timeline A 2051 dollar in 2023 dollars is around 80c. Pretending they can sit on their low yield paper for 28 years while slowly wearing the loss against the current Fed rate, yet alone inflation, is somehow okay because they’ll have the same numeric dollars at the end seems a fallacy unless we’re assuming a hugely deflationary environment from peak population that is not current priced in by markets (i.e. speculating that we’re actually in Timeline C). I assume given the consistency of commentators saying there would be no issue if the assets were held to maturity means I must be overlooking something.
hettygreen 4y ago
I wasn't worried about this until Chase Bank felt the need to publish "Reasons the crisis isn't a repeat of 2008"
- deleted 4y ago
  [deleted]
- simonebrunozzi 4y ago
  "stay calm" !
- 64bittechie 4y ago
  [dead]
- inglor 4y ago
  I was about to say this I’m legitimately worried now -_-‘ Anywhere I can read about why things are so bad they had to publish this?
  - xtian 4y ago
    Michael Hudson: https://michael-hudson.com/2023/03/the-mechanics-of-a-bond-market-and-its-impact-on-the-banking-crisis/ https://michael-hudson.com/2023/03/the-mechanics-of-a-bond-m...
  - ahoyhoy 4y ago
    John Hussman: https://www.hussmanfunds.com/comment/mc230319/ https://www.hussmanfunds.com/comment/mc230319/
- wozer 4y ago
  Well, since it's the investment branch of the bank that's publishing, it would be strange if J.P. Morgan weren't writing about it. Additionally, I think it's definitely worth a read, as it provides detailed information in a cautious style.
juniordev7 4y ago
China is stronger than it's back in 2008. If America continues playing these stupid games, it will end up loosing power to China. You can not export your problems to the world all the time and expect no consequences
awinter-py 4y ago
1. Because in putting all their money into MBS, SVB essentially invested it with merrill lynch pierce fenner and smith circa september 2007, and per temporal waste management rules, when you send toxic waste back in time to destroy it, you can't call it a 'repeat' when it is still a problem in the present 2. Because chase wasn't writing listicles in 2008 fwiw chase's actual argument is 'bank stocks are in the shitter'. This is not what I would write if Chase hired me to write a listicle about Chase being a safe and good place to store things.
notorandit 4y ago
They want to convince investors not to withdraw their money based on pseudo-logics. They want to gather money by leveraging on emotions and feelings. They can do both only with dumb people.
deevolution 4y ago
"Nothing to see here! Move along!"
anothernewdude 4y ago
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weinzierl 4y ago
If anything the banking crisis is more of a repeat of 1973 than 2008.
cm2187 4y ago
I'd argue a big difference between 2008 and now is that in 2008 we mostly saw an institutional run on the bank after Lehman, i.e. money market funds and other banks not trusting banks and refusing to lend longer term than overnight. What we are seeing now is a retail run on the bank, the electronic equivalent of people hearing rumours on the street and queuing in front of branches (except now with twitter and their banking app). In some cases for good reason, others not so good. I think the difference is that retail depositors don't look at financial ratios (and shouldn't be expected to be able to understand them). So how do you convince them? One thing that is certain is that contrary to what the article says, none of the regulations introduced in response of the financial crisis helped. Higher capital ratios? Credit Suisse had 14% CET1 ratio and there was still a run. Higher liquidity requirement? Credit Suisse had over 200% LCR and there was still a run. Bailin? The swiss regulator judged that doing a full bailin of a large financial institution would be too disruptive to financial markets so only bailed in a small tranche of the CS capital stack (AT1). So what tools exactly are available to regulators that weren't in 2008?
- fijiaarone 4y ago
  Nothing happened “after Lehman”. The Lehman collapse was a result of what came before it — the liquidity crisis, the bank runs, and the stock market crash. Does anyone remember the sign boards outside every bank offering up to 10% interest on short term CDs in the fall of 2008? When my mom called in February this year about opening a “savings account” for the grandkids at 5 1/2% interest, I knew something was up. Because the going rate the month before (and ever since 2009) was something like 1/10 of 1%
tomcam 4y ago
Who wouldn’t trust this unimpeachable source of information about bank health? I know, I know. Snark isn’t allowed. Feel free to downvote if you love how Chase Bank treats you as a customer.
Joel_Mckay 4y ago
I find it more interesting few seem able to recall what happened the year prior in 2007. Recall the elevated marketing hype from those trimming portfolios knowing full well what was happening. What I see is a short term 30% sales bump in real-estate (ratio of debts in negative amortization) as the amateur tries to find inflationary shelters after getting disappointed by laggard bond markets. Kind of reminds one of giving sugar-cubes to raccoons... knowing they wash their food in water as habit. Rule #9: if people start answering odd questions you didn't ask, than one probably should be extra cautious. My bag of popcorn is ready. =)
- fijiaarone 4y ago
  Stop shining that light in my eyes.
- meltyness 4y ago
  Where's the "occupy movement"? Where's the "CHAZ/CHOP" of 2023? What about "hope"? Are netizens signing up for exorbitantly expensive new services on a widespread basis? If individuals aren't being "excessively enriched" by conditions it's unlikely to become another spectacular market wide blow-up. Social causes are a proxy for froth. A short Friday memo probably isn't. Exuberance is in the hands of price gougers right now, and even that's mostly confined to California,... and eggs. Sure we're back to "grocery delivery" (which marked the height of the .com bubble) but it's the biggest players involved, the technology is practically free these days, and the immunocompromised benefit!
  - sangnoir 4y ago
    > Where's the "occupy movement"? Where's the "CHAZ/CHOP" of 2023? We have Doge and memestocks as movements for the "common man" that are preemptively subveted.
    - meltyness 4y ago
      Crypto is diffuse and not very many people. Fewer than 2M bitcoin wallets contain $28K, a median family's worth of savings / 4 checking accounts. That's not even a whole city's worth of people "demonstrating", and it's a global thing. It's a quarter of the speculative value of AAPL. It's also concurrent and passive. Very few people have dropped everything to do the crypto influencer dance, and now influencer+crypto is seeing SEC crackdowns. Crypto is at most slacktivism right now. Nothing like BLM, MAGA, which are no doubt viewed by powerful economic planners as wasteful.
blitzar 4y ago
It quite clearly is not a repeat of 2008. It is a repeat of the Savings and Loan Crisis of the 1980s and 1990s. I am not sure they can write and publish that piece however
xiaodai 4y ago
it isn't a repeat it's just another crisis with different causes
nycdatasci 4y ago
The three reasons: (1) Policymakers have tools to solve banking crises, and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller
hellothere1337 4y ago
A good strategy to not get to a "crisis" would be to keep increasing interest rates in order to squeeze the middle class and at the same time print trillions to provide liquidity to the big players like banks. In this way not only will you push wages down through constant layoffs, remove all the advantages that employees had for negotiation during the coronoa boom. But you also squeeze the middle class with huge inflation thus eroding all their savings and hope.
TheAlchemist 4y ago
The fact that they publish this in the first place, is worrying, to say the least. It's also quite true - the banking crisis won't be a repeat of 2008. But, unlike 2008 which was fairly limited to (arguably huge) banking and residential mortgage sectors, this crisis will hit hard everywhere - valuations are still insane, the % of zombie companies is off the charts, inflation is everywhere, FED and governments have much less room to manoeuvre (contrary to what the article claims). In the past 3 weeks, 3 fairly big US banks were seized by regulators, and a 166 year old Suisse bank was rescued. My personal indicator for when the shit is really hitting the fan, is when Warren Buffett starts buying stuff.
- chaosbolt 4y ago
  Exactly and I doubt QE will work now, there is a reason pyramid schemes don't go up forever
  - than3 4y ago
    I wish people would simply call things by the commonly known words that describe them. QE is money printing, and the trap of money printing is that eventually you run into issues where you inevitably have either a deflation spiral, or a hyper-inflation spiral once the store of value is no longer accepted for trade.
- mxschumacher 4y ago
  Buffett is continuously buying, Berkshire's equity positions are in the public record. You can google "Berkshire 13F" to see public US holdings. Credit Suisse was troubled for a long time, their controversy section on Wikipedia is pretty crazy ( https://en.wikipedia.org/wiki/Credit_Suisse#Controversies https://en.wikipedia.org/wiki/Credit_Suisse#Controversies ) Global oil prices have been steadily declining for months, electricity is much cheaper again in Europe and many supply chain bottlenecks have been resolved. This will put a strong break on inflation going forward
- drawkbox 4y ago
  > valuations are still insane Most of the value from the pandemic pump has already been dumped. Some valuations are already too low. In terms of companies, term sheets have already been halved in many cases or withdrawn. As always the scrappy and research and development focused companies will win. The slowdown will probably keep going for a while due to the bigger reason, geopolitical market and trade changes. The funding inflows and outflows have changed dramatically and companies that relied on sometimes foreign authoritarian money will be hurting the most, that was the risk and it is present. Though this is also increasing investment in markets and manufacturing in the West. Long term growth will be immense. The market is almost falsely being held down at this moment due to these influence/attack/change vectors.
Archelaos 4y ago
> For now, the magnitude of this problem is smaller I am not sure about that. In 2008, it was only a crisis in the US real estate lending market that became contagious. Now, it is a crisis of global inflation. All long-term loans were granted by the banks in recent years with the expectation of much lower interest rates. Their prices were ment to cover the risks. Sinces all such loans were too cheap, they actually do not cover the risks appropriately. This means that banks worldwide will face large deficits in the foreseeable future.
- fijiaarone 4y ago
  In 2008 it was also Chinese real estate and European banking recklessness and Japanese monetary policy that provided the sugar cubes. This time, it’s US monetary policy being the fuel to the house of cards built on top of the burning wreck of 2008 that was papered over.
DueDilligence 4y ago
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acd 4y ago
This time its different. Wait we have been through this before. The 2000 dot.com boom, 2008 subprime banking crisis where we bailed out the banks and the banking bonuses. 2023 silicon valley bank, credit suisse. Central bank zero interest policy caused this. Somehow it started in 1980-1990 Japan with their real eastate crisis and japanese bonds central banks going towards zero interest rates. Hopefully it will be better this time. I guess now we will have a mix of startup bubble, real estate bubble, obligation bubble, stock proce inflation of p/e rates valuations.
- christophilus 4y ago
  I wish there was a branch of economics that predicted the boom / bust cycle and proposed an alternative solution.
MichaelMoser123 4y ago
here is my take: interest rates are already where they used to be in 2008, that would imply that people have a hard time paying back their mortgages. Trouble with housing would imply that real trouble is somewhere around the corner. here is a tools that is showing interest rates over several decades: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate
effnorwood 4y ago
[dead]

155 points by s-xyz 4y ago

pnemonic 4y ago

Serious question: Is it a good idea (ever) to trust a bank's take on a financial crisis?

baldeagle 4y ago
Once you acknowledge their bias, they do know an awful lot about banking.
- deleted 4y ago
  [deleted]
- smcin 4y ago
  Well, their selective take is like a description of a mass shooting that only describes where the bodies ended up, but no discussion of who caused it, or even that bullets might have been involved, let alone which people actually did it: "Households had too much leverage in 2008 : Mortgage debt % potential GDP..." "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis." Drink one finger very time you find a bank mentioning the Glass-Steagall Act, and ten bottles every time you find them admitting they lobbied Congress hard to repeal it. [0] "Why didn’t any Wall Street CEOs (or executives) go to jail after the financial crisis?" (also a list of criminal and civil charges, and which banks got fined) [1] ...and here's some shameless revisionism by Cato [2] ("It wasn't the banks [being allowed to issue the CDOs], it was the securities salesmen who spontaneously invented and sold CDOs"). I must remember that compelling excuse if I ever get busted running a casino in my own living-room. > "In any case, the 2008 financial crisis had precious little to do with Glass‐Steagall, one way or the other. It was caused primarily by bad lending policies, which in turn led to the growth of the subprime market to an extent that neither the lawmakers nor regulatory authorities recognized at the time. The commercial banks and parent holding companies that failed — or had to be sold to other viable financial institutions — did so because underwriting standards were abandoned." [0]: https://blogs.law.ox.ac.uk/business-law-blog/blog/2018/11/death-glass-steagall-was-carefully-planned-and-highly-consequential https://blogs.law.ox.ac.uk/business-law-blog/blog/2018/11/de... [1]: https://features.marketplace.org/why-no-ceo-went-jail-after-financial-crisis/ https://features.marketplace.org/why-no-ceo-went-jail-after-... [2]: https://www.cato.org/policy-analysis/repeal-glass-steagall-act-myth-reality# https://www.cato.org/policy-analysis/repeal-glass-steagall-a...
  - JumpCrisscross 4y ago
    Glass-Steagall’s repeal wasn’t proximate to any post-repeal banking crises. (Glass-Steagall wouldn’t have prevented mortgage CDOs.) It certainly wouldn’t have done anything for SVB or Signature.
    - smcin 4y ago
      Re Glass-Steagall and 2008 crisis, Robert Reich and Elizabeth Warren disagree with you [https://robertreich.org/post/124114229225 https://robertreich.org/post/124114229225]. According to you, which legislation prevented the conflict-of-interest in banks writing trillions in subprime mortgages decades prior to 1999? or securities firms selling CDOs backed by subprime MBS? IIUC, the issue in 2008 was never "preventing mortgage CDOs" outright, but preventing the inflated valuations on junk tranches of subprime, i.e. mortgage lenders allowing securities sellers to intentionally create and sell junk with their assets. (and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)
      - JumpCrisscross 4y ago
        > Reich and Elizabeth Warren disagree with you They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense. As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees. > securities firms selling CDOs backed by subprime MBS Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall. Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.
- Broken_Hippo 4y ago
  Once you acknowledge their bias, they do know an awful lot about banking Sure, but I really don't. And a lot of other folks are the same. I know they are both biased and have financial incentives to lie or mislead me. As much as I might try, I know I might not be able to parse out the bullshit from the facts. Those facts are gonna stink of the bullshit even if I can verify it. At least with something like a plumber, I can get a second opinion and so on, and I might just be able to take care of the issue myself instead. This just isn't the case with a bank.
  - fijiaarone 4y ago
    Funny, nobody is talking about Bitcoin or Decentralized Finance as a solution (or even a hedge) to this problem.
    - htss2013 4y ago
      Ummm, they are? See Balaji's million dollar bitcoin bet.
hifromLA 4y ago
Honestly this article seems pretty reasonable for the most part. Source matters, but content matters the most imo.
- junofan 4y ago
  One big issue is ignoring causality and hindsight. E.g. author contrasts “low quality” assets of 15 yrs ago with today’s “high quality” assets, ignoring the fact that asset quality was apparent only in hindsight.
kiernanmcgowan 4y ago
In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.
- ipv6ipv4 4y ago
  A software engineer usually doesn't have a financial incentive to lie to you.
  - ununoctium87 4y ago
    Hey, some of us are passionate about paying rent and bills
    - DennisP 4y ago
      Generally I think you'll find it easier to pay rent if you provide accurate reasons for slow sql queries.
      - marginalia_nu 4y ago
        Eeh https://thedailywtf.com/articles/The-Speedup-Loop https://thedailywtf.com/articles/The-Speedup-Loop
  - CatWChainsaw 4y ago
    And yet upon reading your comment I immediately thought, "They 'trust me'. Dumb fucks."
  - deleted 4y ago
    [deleted]
- earleybird 4y ago
  Until you find the devs take on why the SQL query is slow is a hallucination in the LLM sense.
- 4y ago
varelse 4y ago
[dead]

JumpCrisscross 4y ago

I’m a quarter way convinced mid-sized banks’ stock shouldn’t be publicly traded.

maxbond 4y ago
Why is that?
- JumpCrisscross 4y ago
  Our equity markets have always been weird, but they’ve gotten weirder in recent years. For most businesses, that volatility is fine. Customers of e.g. Nike aren’t checking its stock price before buying sneakers, and it mostly has enough cash on hand to conduct business if creditors get spooked. Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. We’re practically seeing it play out again with Deutsche Bank. Public ownership lets these banks access cheaper capital. But the operational effects of volatility make it seem a bad deal. For the largest banks, if closely supervised, I can see the risks balancing. But for mid-sized banks I don’t.
  - drexlspivey 4y ago
    > Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. You have the cause & effect wrong, the stocks tanks because the bank is failing. Tons of banks that are not publicly traded fail too.
    - JumpCrisscross 4y ago
      > stocks tanks because the bank is failing In this cycle, Signature and Credit Suisse's stock slides preceded their banking panics. The proximate causation flowed from equity prices, to CDS, to deposits. (The ultimate causation stemmed from a general insolvency. But that's not unique to Signature over its privately-held counterparts.)

meltyness 4y ago

To summarize: "Policymakers have tools to solve banking crises [...]" With TARP/EESA still in place Fed/Treasury have more power "The economy is in a much different place" XLK has subsumed XLF since 2008 "The magnitude of the problem is, so far, much smaller" Look forward to my upcoming essay "Casting doubt on the commercial real-estate economy" In conclusion, "we still don't see it coming" avoiding the term, "subprime" or acknowledging that predatory lending ever occurred, and this weird typo: "[...] the primary facility *though* which banks can borrow [...]"

GrumpyNl 4y ago

Banking will only change when we keep the management fully responsible. The bank goes bankrupt, the management goes bankrupt, see how they will gamble with your money then.

deleted 4y ago
[deleted]

mabbo 4y ago

Okay did anyone else get tricked by that websites dark pattern? We've all been trained to not even look at the "do you accept cookies" thing anymore and just blindly press it. On this website, it's actually an ad link to their paid services that looks just like one of those accept cookies buttons.

corndoge 4y ago
At least some of us do bother to click "set preferences" and set all the cookies to off. If you are a habitual cookie clicker there is also this: https://addons.mozilla.org/en-US/firefox/addon/istilldontcareaboutcookies/ https://addons.mozilla.org/en-US/firefox/addon/istilldontcar...
avodonosov 4y ago
I always reject

fyzix 4y ago

History never repeats itself, but it does often rhyme. We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008. There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade. PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...

notch898a 4y ago
>There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed knows this. They should make it explicit to the common, ~100 IQ, joe six pack American. It's infuriating watching them act so carefully as to pretend to try and not spook anyone.
- fijiaarone 4y ago
  You’re making the weird assumption that the people at the Fed have greater than 99 IQ, or any desire at all to learn about the effects of their monetary decisions other than their own short term personal gains. And there is no indication of either of these suppositions.
e_i_pi_2 4y ago
I nice twist I heard recently - it's more like a song, and I'm getting really tired of going back to the same chorus over and over again
vkou 4y ago
> The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade. How on Earth is providing short-term liquidity[1] until the long-term low-yield bonds owned by those banks mature translates into double-digit inflation? And why should we listen to this [2] prediction of double-digit inflation? [1] At least in the US. Switzerland is doing its own thing with the UBS/CS merger, good luck to those folks, that sounds like a fun garbage dump to dig through. [2] Similar comments predicted 15 of the past ~1 years of double-digit inflation.

choiway 4y ago

Just because a cookie doesn't crumble the same way doesn't mean the cookie isn't crumbling.

yieldcrv 4y ago

adding liquidity via “policy maker’s tools” doesn't fix the problem or provide assurance that Credit Suisse isn’t the beginning of something else CS AT1 bondholders now have gigantic $17bn hole in their balance sheet/portfolio The whole AT1 bond market is experiencing losses of similar size to the treasury bond market If anybody collateralized those? Bigger losses Losses aren't controversial, but they are when theyre losses with other people’s money who arent investors

ororroro 4y ago
AT1 bonds are specifically designed for this purpose though. They offer high returns but at a higher risk. How would one collateralize an asset that is designed to default catastrophically while hiding this fact from the lender?

naveen99 4y ago

Credit suisse looked more like 2008. Svb, frc not so much.

fintechie 4y ago

Of course isn't a repeat, it's just another flavour with similar consequences: bailouts, money printing, rampant inflation, credit crunch, and so on. No matter the language acrobatics and fancy terms used to describe it.

tzs 4y ago
Where was the "rampant inflation" from 2008? I don't see it here [1]. [1] https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi https://www.macrotrends.net/countries/USA/united-states/infl...
- spaceman_2020 4y ago
  Chart assets instead of prices and you’ll see it. This has social and political consequences. Populists haven’t started popping up across the western world for no reason. Half the country feels priced out of basic dignities like housing.
  - pixelfarmer 4y ago
    That is because housing is coupled to the stock market. Stock market and real economy are two different things by now, or should be treated as such conceptually.
    - spaceman_2020 4y ago
      Try telling that to someone in the bottom 50%ile. “Sorry that you’ll never own a house - our free money policies have decoupled the real economy and stock market. Now get back to work.”

photochemsyn 4y ago

JPMorganChase bought Bear Stearns for $2 a share in 2008, but this is entirely unlike UBS acquiring Credit Suisse this past week? https://www.nytimes.com/2008/03/17/business/17bear.html https://www.nytimes.com/2008/03/17/business/17bear.html Credit Suisse shareholders were paid in shares of UBS, in a major value writedown, quite comparable to the JPMChase deal for Bear. Certain select shareholders (Saudi Arabia and Qatar) seem to have been protected while others (AT1 bondholders) were not. Patrick Boyle's YT channel is doing a great job on this, first became aware of it during the SBF spectacle, just as good now: https://youtu.be/hV0gpO1B6tU https://youtu.be/hV0gpO1B6tU > "UBS was clear from the very start that they would only participate in the deal if it was cheaply priced and if UBS could be indemnified from any of the legal issues that Credit Suisse was potentially facing... 'This is no bailout', the Swiss finance minister said, 'This is a commercial solution'" So the difference is what, it's more globalized this time around? Note that indemnity provision was likely informed by fallout from the JPMChase deal for Bear, see this 2013 Reuters Blurb: > "New York state’s lawsuit against JPMorgan Chase & Co. alleging fraud in mortgage-backed securities sold by Bear Stearns may be one of the broadest cases to come out of the financial crisis..." It seems quite familiar. Investment capitalism goes belly up once again due to short-sighted greed and a lack of regulation, and the government steps in to cover the losses for the fearless risk-taking entrepreneur class (who have bought most of the politicians) in what certainly looks like an 'entitlement program'... while libertarians everywhere remain curiously silent. Con artist much? Social safety nets for the billionaire investors are needed to prevent societal collapse, it seems. But who cares about all the homeless encampments, they should have learned how to program... it's their own fault, and people need to take responsibility for their actions...

dalbasal 4y ago

It feels like all the content here is subtext... so I guess I get to do Philology. These are the given reasons: | this probably isn’t 2008, for three key reasons: (1)Policymakers have tools to solve banking crises, (1.5) and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller | His take on reason #1 is that MMT has won. Monetarism is over now. Dollars in the bank are dollars in the Fed and these are infinite. They're still pretending in the rhetorical, political and legal sense... but the policies are not that anymore. The Fed can, if it wants, increase rates but as it does it will fully back banks. Banks are no longer limited by the value of securities on their books. This is now known not to cause hyperinflation, and regular inflation is either tolerable or someone else's job. reason #2 - For Non-banks like a company with a loan or a human with a mortgage, "Monetarism is dead" means nothing. They're affected by rate increases and can run out of money and get wiped out. Luckily, debt is not super high like it was in 2008. He charts household debt, but I think the bigger "story" is company debt. Google, Amazon, even Tesla are all about equity. They're don't care about interest rates. Reason # 3 needs no commentary: "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis. This episode has been driven by price declines in high-quality assets with pristine disclosure leading to a liquidity issue."

cultureswitch 4y ago
Money started out fictional, we're just taking our sweet time mentally recovering from around a millennia of thinking metal and money are the same thing. Turns out, the real nature of money is debt. And debt is just a relation between people, so there's no natural limit to it, other than confidence.
spaceman_2020 4y ago
It’s so short-sighted to say that inflation is “tolerable”. Since 2008, the real inflation has been in asset prices - housing, equities, startup valuations have been up massively across the board. This has societal consequences. The divide between the asset owning class and the non-asset owning class has never been greater. Stretch that out and you get populists getting elected all over the world. Donald Trump didn’t get elected in a vacuum.

qwertyuiop_ 4y ago

That’s what they said last time and the time before that.

Avshalom 4y ago

It aint fucking lost on me that financial papers spent the better part of 2022 arguing that we were headed for a recession. The q4 numbers came in showing the US economy was still expanding and now those same papers are telling me we're in a banking crisis on the basis of like two and a half banks, with SVB and CS both being fully rescued. The fucking owners of capital seem bound and determined to destroy their own system.

chiefalchemist 4y ago
> The fucking owners of capital seem bound and determined to destroy their own system. Nah. These disruptions are a means to an ends. That is, shifting still more wealth to the top. Follow that graph. Everything else is a means to that ends or a distraction.
- oblio 4y ago
  I hate all these conspiracy theories. And you know why? It's because they imply hubris, arrogance, control. Let's just realize that we all have a lot less control over our environment than we think we do, and some things are just forces beyond anyone's control.
  - Avshalom 4y ago
    I mean hubris and arrogance are in full and open display pretty constantly. The inability to actually control shit is why its always a moving target. but the idea that rich people are acting in a manner to maintain/increase their wealth aint exactly a conspiracy theory.
    - oblio 4y ago
      > but the idea that <<people>> are acting in a manner to maintain/increase their wealth aint exactly a conspiracy theory. This is the correct statement and it's not a conspiracy theory, it's a banality.
      - 4y ago

49erfangoniners 4y ago

Lol thanks chase

alxmng 4y ago

Who cares about keeping deposits safe when money isn’t worth anything? Americans don’t even have money in the bank. Median savings is $4500. Many people who perform socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation.

mym1990 4y ago
Ah but we have a solution to that: its called going into a crippling amount of debt which one will never be able to pay off, which will guarantee a revolving door leading right into the bank's pocket book!
LoganDark 4y ago
> Americans don’t even have money in the bank. Median savings is $4500. > Many people who materially contribute by doing socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation. I... hate that this is so accurate...
arcticbull 4y ago
My money still seems to work great. Those are some serious fiscal and social (but not monetary) issues that should be taken up with Congress not the Fed, and not the FDIC. Who handled this all very well I might add. > Median savings is $4500. The average American family has a $748,000 net worth, according to Federal Reserve data, median $121,000. Savings isn't just what's in your 'savings' account. Mine definitely isn't. Money is a medium of exchange and unit of account. It's not a tool for building wealth, and it's not a long-term store of value. It never was. They shouldn't have money in the bank, they should have it productively invested.
- deleted 4y ago
  [deleted]
- klyrs 4y ago
  By your numbers, the median American family could put their entire net worth towards a cramped condo and still be making payments. That is not the image of stability that you're pretending it is.

treebeard901 4y ago

In 2008, the Treasury and Federal Reserve had a ton of ammo to use to provide liquidity. Since then, they have tried to inflate their way out of it using creative accounting and quantitative easing. The reason this could be worse than 2008 is that those methods will not work as well. Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc. When they tried to sell it to provide liquidity for deposits they found there were not many buyers for it. Since 2008, foreign purchases of long term debt have dropped from many of the main credit countries with no real replacement other than the federal reserve. If the Fed moves from a buyer of last resort to the only buyer then that is game over. QE won't help because it will cause inflation. Inflation will move people, foreign countries and institutional investors away from long term debt. Basically a hyperinflationary environment with systemic bank failures all caused by a sovereign debt crisis. Before long just funding the Govt will be impossible because the debt will no longer be seen as safe as it once was. The difference is that the collapse won't be as immediate as 2008. It can be much more of a controlled demolition, until the methods they have used stop working. It all just has to collapse at some point and reach an equilibrium again. It's only a matter of time...

Retric 4y ago
Banks don’t have nearly as many worthless assets today as they did in 2008, which completely changes the underlying economics. As long as they aren’t offering higher returns than their existing investments can support, the only thing they have to fear is bank runs.
- fuoqi 4y ago
  SVB also did not have "worthless assets", but the extreme rate hikes by the Fed significantly reduced its value. Wait until tightness of credit conditions will cause chain of defaults and we will see how well banks will fare. We already see the first signs of it in the auto loans market.
  - Retric 4y ago
    SVB was offering both extremely high interest rates and suffered a bank run. Thus they both really messed up and happened to get punished, but it really doesn’t reflect the wider banking system.

paulpauper 4y ago

It helped greatly that the fed acted so fast. Had nothing been done it would have been way worse. Even Charles Schwab even was down 20% on Monday ,and this was after the bailout. Things were getting really scary.

hayst4ck 4y ago

The primary function of central banks isn’t managing inflation and employment, it is acting as a lender of last resort. In this way, central banks provide the bedrock for the banking system. The Fed’s ability to perform this role expanded during the Global Financial Crisis. They created many different types of lending facilities to provide liquidity to banks, and many former broker-dealers (like Morgan Stanley and Goldman Sachs) became bank holding companies so that they could access them. Am I crazy or was there an entire section that said "this isn't a crisis because the fed is happy to give banks that make poor investment decisions taxpayer money?" Doesn't this say that when a bank makes a poor investment, they can borrow from the taxpayer so they don't have to realize their loss?

fells 4y ago
The fed doesn't have access to taxpayer money.
- horns4lyfe 4y ago
  They absolutely do. They print money, and the resulting inflation is an indirect tax; the glory of MMT.
- hayst4ck 4y ago
  Does that mean that instead of giving taxpayer money, they instead devalue all taxpayer money by inventing new money?
  - zx8080 4y ago
    True. There's option to export a newly created inflation to other countries, at least partially. Thus, steal from other countries' citizens and taxpayers.
  - mullingitover 4y ago
    Honestly, it's a good thing. Given how dysfunctional the legislative branch is with fiscal policy I can't imagine a worse idea than putting it in charge of monetary policy as well.

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fuoqi 4y ago

I wonder about the end-game effect of the BTFP. Great, today banks got enough liquidity thanks to the Fed, but after 90 days they have to return borrowed funds together with a relatively high interest and get back semi-worthless paper (because selling it will result in realized losses). In 90 days credit conditions probably will be even tighter than today and a lot of people will flee to the too big to fail banks. How we expect small/mid banks to stay stable after that? And I don't even want to touch the question of fiscal deficits, which not only do not show signs of moderation, but accelerate even further. It either ends in a real default, or persistent high inflation, with negative real rates, which in a sense is also a default.

nopassrecover 4y ago
The BTFP has a one year term compared to the 90 day discount window. You’re completely right about still being stuck with the low yield paper at the end of the year and the relatively high (to the paper) interest rate in the meantime (my read is that the banks continue to hold the paper and get the yield over the year rather than handing it over to the Fed, partially offsetting the interest cost, but I’m uncertain if that’s correct). For that reason my speculation is the BTFP will be rolled over to keep kicking the can down the road at least until the proportion of debt sitting in long-term low yield held to market assets decreases (basically via the bank version of dollar cost averaging as they buy new treasuries/MBSs over time) or interest rates drop sufficiently that the haircut on their current low yield assets meaningfully reduces. The interest rate charge by the Fed right now is effectively making the bank realise the haircut on their paper over that year while keeping up the illusion that their assets are still worth par value. This gives the banks the liquidity they need without having to write down the value of all their HTM assets as they would have to do if they actually sold any. In reality this also means those balance sheets, assuming conditions continue rather than return to ultra low inflation (or deflationary) conditions, are overstated. The FDIC suggests this is by around $620bn for US banks which is smallish compared to the total US banking assets of $23,245bn but sizeable when you consider the sector has “only” $2,175bn residual assets after liabilities and imagine the distribution of unrealised losses against net positions across different banks. With that said, the interest payments of leveraging the BTFP will presumably add to liquidity pressure, while even banks not using the facility but holding low yield HTM assets will be feeling the squeeze of needing to pay depositors current interest rates backed by a portfolio weighted down by low yield paper. For that reason if things worsen it wouldn’t surprise me if the Fed dropped the interest rate fee for BTFP towards the average yield of the pledged paper, effectively turning low yield paper into current yield assets and pretending 2020-22 never happened while shoring up the profitability of banks that managed their way healthily through this saga. What I find a little confusing is how commentators seem to think there’s no problem because banks can hold/could have held these assets to maturity and get back the par value then - that the problem is simply that people wanted their money back at the wrong time. I guess that’s true in the strict sense of “why now” but unless conditions change again the unrealised loss will be realised eventually - either in one hit by conversion to today dollars or over time by inflation. The only way I can see this not being a problem is if banks were going to keep paying depositor interest rates as if it were 2021 until these low yield assets came to maturity, but the challenge of doing that without bailing in depositor funds over that time window when someone down the street will otherwise pay something closer to the current Fed rate seems obvious. It seems like the only game once yields rose was spinning plates and wearing the loss slowly hoping their portfolio sufficiently turned over in the meantime. As I see it in the simplest sense, a bunch of banks have traded 2021 dollars for Timeline A 2051 dollars, where Timeline A has 30 years of extremely low inflation. People have now asked for 2023 dollars back. But it turns out we now live in Timeline B where we’re looking at moderately low inflation over the next 30 years, and the value of a Timeline A 2051 dollar in 2023 dollars is around 80c. Pretending they can sit on their low yield paper for 28 years while slowly wearing the loss against the current Fed rate, yet alone inflation, is somehow okay because they’ll have the same numeric dollars at the end seems a fallacy unless we’re assuming a hugely deflationary environment from peak population that is not current priced in by markets (i.e. speculating that we’re actually in Timeline C). I assume given the consistency of commentators saying there would be no issue if the assets were held to maturity means I must be overlooking something.

hettygreen 4y ago

I wasn't worried about this until Chase Bank felt the need to publish "Reasons the crisis isn't a repeat of 2008"

deleted 4y ago
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simonebrunozzi 4y ago
"stay calm" !
64bittechie 4y ago
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inglor 4y ago
I was about to say this I’m legitimately worried now -_-‘ Anywhere I can read about why things are so bad they had to publish this?
- xtian 4y ago
  Michael Hudson: https://michael-hudson.com/2023/03/the-mechanics-of-a-bond-market-and-its-impact-on-the-banking-crisis/ https://michael-hudson.com/2023/03/the-mechanics-of-a-bond-m...
- ahoyhoy 4y ago
  John Hussman: https://www.hussmanfunds.com/comment/mc230319/ https://www.hussmanfunds.com/comment/mc230319/
wozer 4y ago
Well, since it's the investment branch of the bank that's publishing, it would be strange if J.P. Morgan weren't writing about it. Additionally, I think it's definitely worth a read, as it provides detailed information in a cautious style.

juniordev7 4y ago

China is stronger than it's back in 2008. If America continues playing these stupid games, it will end up loosing power to China. You can not export your problems to the world all the time and expect no consequences

awinter-py 4y ago

1. Because in putting all their money into MBS, SVB essentially invested it with merrill lynch pierce fenner and smith circa september 2007, and per temporal waste management rules, when you send toxic waste back in time to destroy it, you can't call it a 'repeat' when it is still a problem in the present 2. Because chase wasn't writing listicles in 2008 fwiw chase's actual argument is 'bank stocks are in the shitter'. This is not what I would write if Chase hired me to write a listicle about Chase being a safe and good place to store things.

notorandit 4y ago

They want to convince investors not to withdraw their money based on pseudo-logics. They want to gather money by leveraging on emotions and feelings. They can do both only with dumb people.

deevolution 4y ago

"Nothing to see here! Move along!"

anothernewdude 4y ago

It looks like this part of our site isn't working right now. Please try again later. Thanks for your patience.

weinzierl 4y ago

If anything the banking crisis is more of a repeat of 1973 than 2008.

cm2187 4y ago

I'd argue a big difference between 2008 and now is that in 2008 we mostly saw an institutional run on the bank after Lehman, i.e. money market funds and other banks not trusting banks and refusing to lend longer term than overnight. What we are seeing now is a retail run on the bank, the electronic equivalent of people hearing rumours on the street and queuing in front of branches (except now with twitter and their banking app). In some cases for good reason, others not so good. I think the difference is that retail depositors don't look at financial ratios (and shouldn't be expected to be able to understand them). So how do you convince them? One thing that is certain is that contrary to what the article says, none of the regulations introduced in response of the financial crisis helped. Higher capital ratios? Credit Suisse had 14% CET1 ratio and there was still a run. Higher liquidity requirement? Credit Suisse had over 200% LCR and there was still a run. Bailin? The swiss regulator judged that doing a full bailin of a large financial institution would be too disruptive to financial markets so only bailed in a small tranche of the CS capital stack (AT1). So what tools exactly are available to regulators that weren't in 2008?

fijiaarone 4y ago
Nothing happened “after Lehman”. The Lehman collapse was a result of what came before it — the liquidity crisis, the bank runs, and the stock market crash. Does anyone remember the sign boards outside every bank offering up to 10% interest on short term CDs in the fall of 2008? When my mom called in February this year about opening a “savings account” for the grandkids at 5 1/2% interest, I knew something was up. Because the going rate the month before (and ever since 2009) was something like 1/10 of 1%

tomcam 4y ago

Who wouldn’t trust this unimpeachable source of information about bank health? I know, I know. Snark isn’t allowed. Feel free to downvote if you love how Chase Bank treats you as a customer.

Joel_Mckay 4y ago

I find it more interesting few seem able to recall what happened the year prior in 2007. Recall the elevated marketing hype from those trimming portfolios knowing full well what was happening. What I see is a short term 30% sales bump in real-estate (ratio of debts in negative amortization) as the amateur tries to find inflationary shelters after getting disappointed by laggard bond markets. Kind of reminds one of giving sugar-cubes to raccoons... knowing they wash their food in water as habit. Rule #9: if people start answering odd questions you didn't ask, than one probably should be extra cautious. My bag of popcorn is ready. =)

fijiaarone 4y ago
Stop shining that light in my eyes.
meltyness 4y ago
Where's the "occupy movement"? Where's the "CHAZ/CHOP" of 2023? What about "hope"? Are netizens signing up for exorbitantly expensive new services on a widespread basis? If individuals aren't being "excessively enriched" by conditions it's unlikely to become another spectacular market wide blow-up. Social causes are a proxy for froth. A short Friday memo probably isn't. Exuberance is in the hands of price gougers right now, and even that's mostly confined to California,... and eggs. Sure we're back to "grocery delivery" (which marked the height of the .com bubble) but it's the biggest players involved, the technology is practically free these days, and the immunocompromised benefit!
- sangnoir 4y ago
  > Where's the "occupy movement"? Where's the "CHAZ/CHOP" of 2023? We have Doge and memestocks as movements for the "common man" that are preemptively subveted.
  - meltyness 4y ago
    Crypto is diffuse and not very many people. Fewer than 2M bitcoin wallets contain $28K, a median family's worth of savings / 4 checking accounts. That's not even a whole city's worth of people "demonstrating", and it's a global thing. It's a quarter of the speculative value of AAPL. It's also concurrent and passive. Very few people have dropped everything to do the crypto influencer dance, and now influencer+crypto is seeing SEC crackdowns. Crypto is at most slacktivism right now. Nothing like BLM, MAGA, which are no doubt viewed by powerful economic planners as wasteful.

blitzar 4y ago

It quite clearly is not a repeat of 2008. It is a repeat of the Savings and Loan Crisis of the 1980s and 1990s. I am not sure they can write and publish that piece however

xiaodai 4y ago

it isn't a repeat it's just another crisis with different causes

nycdatasci 4y ago

The three reasons: (1) Policymakers have tools to solve banking crises, and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller

hellothere1337 4y ago

A good strategy to not get to a "crisis" would be to keep increasing interest rates in order to squeeze the middle class and at the same time print trillions to provide liquidity to the big players like banks. In this way not only will you push wages down through constant layoffs, remove all the advantages that employees had for negotiation during the coronoa boom. But you also squeeze the middle class with huge inflation thus eroding all their savings and hope.

TheAlchemist 4y ago

The fact that they publish this in the first place, is worrying, to say the least. It's also quite true - the banking crisis won't be a repeat of 2008. But, unlike 2008 which was fairly limited to (arguably huge) banking and residential mortgage sectors, this crisis will hit hard everywhere - valuations are still insane, the % of zombie companies is off the charts, inflation is everywhere, FED and governments have much less room to manoeuvre (contrary to what the article claims). In the past 3 weeks, 3 fairly big US banks were seized by regulators, and a 166 year old Suisse bank was rescued. My personal indicator for when the shit is really hitting the fan, is when Warren Buffett starts buying stuff.

chaosbolt 4y ago
Exactly and I doubt QE will work now, there is a reason pyramid schemes don't go up forever
- than3 4y ago
  I wish people would simply call things by the commonly known words that describe them. QE is money printing, and the trap of money printing is that eventually you run into issues where you inevitably have either a deflation spiral, or a hyper-inflation spiral once the store of value is no longer accepted for trade.
mxschumacher 4y ago
Buffett is continuously buying, Berkshire's equity positions are in the public record. You can google "Berkshire 13F" to see public US holdings. Credit Suisse was troubled for a long time, their controversy section on Wikipedia is pretty crazy ( https://en.wikipedia.org/wiki/Credit_Suisse#Controversies https://en.wikipedia.org/wiki/Credit_Suisse#Controversies ) Global oil prices have been steadily declining for months, electricity is much cheaper again in Europe and many supply chain bottlenecks have been resolved. This will put a strong break on inflation going forward
drawkbox 4y ago
> valuations are still insane Most of the value from the pandemic pump has already been dumped. Some valuations are already too low. In terms of companies, term sheets have already been halved in many cases or withdrawn. As always the scrappy and research and development focused companies will win. The slowdown will probably keep going for a while due to the bigger reason, geopolitical market and trade changes. The funding inflows and outflows have changed dramatically and companies that relied on sometimes foreign authoritarian money will be hurting the most, that was the risk and it is present. Though this is also increasing investment in markets and manufacturing in the West. Long term growth will be immense. The market is almost falsely being held down at this moment due to these influence/attack/change vectors.

Archelaos 4y ago

> For now, the magnitude of this problem is smaller I am not sure about that. In 2008, it was only a crisis in the US real estate lending market that became contagious. Now, it is a crisis of global inflation. All long-term loans were granted by the banks in recent years with the expectation of much lower interest rates. Their prices were ment to cover the risks. Sinces all such loans were too cheap, they actually do not cover the risks appropriately. This means that banks worldwide will face large deficits in the foreseeable future.

fijiaarone 4y ago
In 2008 it was also Chinese real estate and European banking recklessness and Japanese monetary policy that provided the sugar cubes. This time, it’s US monetary policy being the fuel to the house of cards built on top of the burning wreck of 2008 that was papered over.

DueDilligence 4y ago

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acd 4y ago

This time its different. Wait we have been through this before. The 2000 dot.com boom, 2008 subprime banking crisis where we bailed out the banks and the banking bonuses. 2023 silicon valley bank, credit suisse. Central bank zero interest policy caused this. Somehow it started in 1980-1990 Japan with their real eastate crisis and japanese bonds central banks going towards zero interest rates. Hopefully it will be better this time. I guess now we will have a mix of startup bubble, real estate bubble, obligation bubble, stock proce inflation of p/e rates valuations.

christophilus 4y ago
I wish there was a branch of economics that predicted the boom / bust cycle and proposed an alternative solution.

MichaelMoser123 4y ago

here is my take: interest rates are already where they used to be in 2008, that would imply that people have a hard time paying back their mortgages. Trouble with housing would imply that real trouble is somewhere around the corner. here is a tools that is showing interest rates over several decades: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate

effnorwood 4y ago

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