That’s Not Chocolate – Financial Crash
By CL Lucas | Originally published at One Vet Two Cups, March 2023
For Generation Alphabet (Just Call Them Gaz), the recent Silicone Valley and Signature Bank implosions are as insignificant as the fart of a tsetse fly resting on a wildebeest’s ass standing a crocodile pool in eastern Zimbabwe.
We’ve got strong financial institutions…Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.
Henry Paulson, Treasury Secretary on March 16th, 2008.
Nestled safe as a mouse in the green lint of U.S. Federal paper stuffed in their parents’ pocket lining, the Gaz amble forth to their college courses in Theology of 19th Century Lesbian Underwater Basket Weaving — Patriarchal Exclusion and the Hegemony, they are fit-to-fiddle in their minds, a globule grey matter perched back from a mandible shielded by an ever-present mask.
In fact, as Mr. James Quinn, regular author at Seeking Alpha, a top premium financial and market subscription, pontificates; These kids may soon be burning the greenback for warmth stuffing oversized shoes to fit. The 2008 bank implosions are now a case of 2008 déjà vu, the last major marker of financial trouble and the essence of his 2008 article Is the U.S. Banking System Safe?
Interestingly, that headline is a leading Google Search string.
Overall, the Quinn’s source article is an important read — I’ll complete an MBA soon; I best amplify knowledge to match.
Quinn’s 2008 article got the attention of then documentarian Steve Bannon, convincing him to rely on Quinn for perspectives of the 2008 financial crisis. Quinn’s take made into Bannon’s film Generation Zero exploring the causes of the global economic crisis; begun in 2008, was brought about by decades of social manipulation and its influences on financial system operations.
Quinn leads his recent article with a quote from turd-corn-kernel Henry Paulson and follows up with the below — same turd, different corn — the Treasury Secretary who ultimately controls Wall Street Machinations. The statements are exactly 15 years apart.
I have full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event. Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again.
Janet Yellen, March 2023.
Quinn writes, the lying, deceitful Wall Street-controlled Treasury Secretary’s (statements) are 15 years and the same. The secretary’s jobs are to keep the confidence game going and keep the Wall Street bankers content.
Michael Burry, who identified the looming The Big Short sub-prime mortgage crisis in 2005, Tweeted on March 12th:
2000, 2008, 20023, it is always the same. People full of hubris and greed take stupid risks (with your tax money, emphasis mine)…and fail. Money is then printed. Because it works so well (sarcasm…Emphasis Burry’s).
M. Burry via twitter
The Fed’s only solution is to print money and shovel it to the bankers. Quinn pointed this out fifteen years ago and doesn’t need to re-write it because the science of finance remains the same.
Our economy and banking system is so complex and intertwined that no one knows where the next shoe will drop. Politicians and government bureaucrats lie to the public when they say everything is alright. They do not know. Should you believe a governmental agency that wants the public to remain in the dark to avoid bank runs or an independent analysis based upon balance sheet analysis?
Quinn 2008
The days of The Big Short (BS) was just the tip, so to speak. We aren’t talking about the tip of the iceberg, but the just the tip — in a sexual sense.
Remember, penetration no matter how slight constitutes fornication and in the case of bankers and the financial markets, us regular plebes are still getting fucked, and we are going to get fucked harder, thanks to Papa Joe.
We are spiraling straight into the fuck zone (imagine Kenny Loggins’ Danger Zone playing in your head), and despite being told by the media a-la Jim Cramer et al the brown substance on the tip is chocolate…it ain’t.
Before the BS crisis, the public was clueless to toxic subprime mortgages doled out by criminal bankers; making matters worse, the mortgages were packed into derivatives and given (Triple-A) AAA grades by rating agencies (compliant) in the pocket of the bankers.
Broadening our collective knowledge~
The Subprime Mortgages:
Subprime mortgages are usually issued to borrowers with poor credit. A conventional prime mortgage isn’t offered because the lender views the borrower as having a greater-than-average default risk.
Lending institutions often charge interest on subprime mortgages at a much higher rate than prime mortgages to compensate for the risk. These are often adjustable-rate mortgages (ARMs), so the interest rate can increase (or decrease) over time.
Key Facets
Subprime refers to the below-average credit score of the individual taking out the mortgage, indicating that they might be a credit risk.
Interest rates associated with a subprime is usually high to compensate for risk the borrower will default. These borrowers typically have credit scores below 640 and other negative entries in their credit reports.
The 2008 financial crisis has been blamed on the proliferation of subprime mortgages offered to unqualified buyers in the years leading up to the meltdown.
Mortgages to subprime borrowers (now) have restrictions placed on them and must be appropriately underwritten.
Understanding the Subprime Mortgage
Subprime doesn’t refer to the interest rates attached to the mortgages but rather the credit score of the individual taking out the mortgage. Borrowers with scores below 640 will often be stuck in subprime mortgages with corresponding higher interest rates.
Subprime Mortgage Rates Generally Depends on Four Factors:
— Credit score
— The size of the down payment
— The number of late payment delinquencies on a borrower’s credit report
— The types of delinquencies found in the report
In ’08, as the clock ticked down on Wall Street, notorious figures such as John Thain, Dick Fuld, Angelo Mozilo, and Kerry Killinger continued to spin a web of deceit, assuring the public of their companies’ robust health and profitability. Little did we know, the art of manipulation and deception was deeply ingrained within the very fabric of these financial captains, politicians, government officials, and Federal Reserve insiders.
How Derivatives Work
The cause of the 2008 financial crisis was the proliferation of unregulated derivatives. These complicated financial products derive value from an underlying asset or index. An example of a derivative is a mortgage-backed security.
Most derivatives start with a real asset. Here’s how they work, using mortgage-backed securities as an example.
A bank lends money to a homebuyer
The bank then sells the mortgage to Fannie Mae; this gives the bank more funds to make new loan.
Fannie Mae resells the mortgage in a package of other mortgages on the secondary market. This is a mortgage-backed security — its value derived from the mortgage values in the bundle.
The secondary mortgage market allows banks to repackage and sell mortgages as securities to institutional investors. These investors include significant pension funds, insurance companies, hedge funds, and the federal government. In turn, the buyers of the bank’s mortgage investment products will often repackage and sell the mortgage securities to smaller investors.
A hedge fund or investment bank divides the MBS into different portions. For example, interest-only loans’ second and third years are riskier since they are farther out. There’s more of a chance the homeowner will default. But it provides a higher interest payment. The bank uses sophisticated computer programs to figure out all this complexity. It then combines it with similar risk levels of other MBS and resells just that portion, called a tranche, to additional hedge funds.
A tranche is a bundle of derivatives. It allows you to invest in the portion with similar risks and rewards. All is well until housing prices decline or interest rates reset, and the mortgages start to default.
Derivatives in the Financial Crisis
Between 2004 and 2006 the Federal Reserve started raising the fed funds rate. Many of the borrowers had interest-only loans, which are a type of Adjustable-rate Mortgage (ARM).
Unlike a conventional loan, the interest rates rise along with the fed funds rate. When the Fed started raising rates, these mortgage holders found they could no longer afford the payments.
As rates rose, housing demand fell, and so did home prices. These mortgage holders found they couldn’t make the payments or sell the house (the house values, like depreciation on a car, had them underwater) so they defaulted.
This is an inherent risk buying a house in an inflated (desirable) area, where True Home Value is not aligned with the local market.
Banks and hedge funds had lots of derivatives that were declining in value and couldn’t sell. Soon, banks stopped lending to each other altogether. They were afraid of receiving more defaulting derivatives as collateral. They started hoarding cash to pay for their day-to-day operations.
It is not just mortgages that provide the underlying value for derivatives. Other types of loans and assets can, too. For example, suppose the underlying value is corporate debt, credit card debt, or auto loans. In that case, the derivative is called collateralized debt obligation. A type of CDO is asset-backed commercial paper, a debt due within a year. The derivative is called a credit default swap if it is debt insurance.
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History has a habit of repeating itself, and the financial events of 2008 seem to be making a comeback.
Remember Bear Stearns?
The firm’s collapse resulted in a shotgun wedding with JP Morgan, orchestrated by Bernanke and the Federal Reserve. While pundits back then claimed it was a one-time mishap and the banking sector stayed resilient, Wall Street banks were, in fact, playing hide-and-seek with losses in their balance sheets. By retaining toxic mortgage debt instead of addressing it head-on, they allowed the financial contagion to fester.
Will the ghosts of 2008 continue to haunt us, or have we learned our lesson?
Quinn says no and I believe him.
Picture this: Summer of 2008, banks announced losses, yet reassured investors it was a passing storm. Suddenly, Wall Street bank stocks surged by 20% or more, as the 2nd quarter losses weren’t as disastrous as anticipated.
Amidst the chaos, Quinn’s article broke through the relentless B.S. of misinformation from the likes of Larry Kudlow, Jim Cramer, and so-called analyst experts. Defying CNBC’s deceptive tales, Quinn’s analysis offered a daring, alternative and accurate perspective.
I believe we are only in the early innings of bank write-offs. The write-offs will at least equal the previous peaks reached in the early 1990s. If a large bank such as Washington Mutual or Wachovia were to fail, it would wipe out the FDIC fund. If the FDIC fund is depleted, who will be responsible for payment? Right again, another taxpayer bailout. What’s another $100 or $200 billion among friends.
Ibid.
Merrill Lynch found themselves caught in a catastrophic whirlwind, hemorrhaging billions and frantically attempting to keep afloat by issuing fresh stocks. Quinn, a keen observer, discerned the impending collapse etched on the horizon.
How long will they dupe investors into supporting this disaster? You can be sure that the other suspects (Citicorp, Lehman Brothers, Washington Mutual) will announce more write-downs and capital dilution in the coming weeks.
Ibid.
By the end of September, Lehman Brothers and Washington Mutual were gone. Merrill Lynch and Wachovia were acquired for pennies, and Citicorp became a zombie bank sustained by the Fed for years. Quinn’s dire, analytic article prophesied years of pain and the worst drop in housing prices in history:
“There are $440 billions of adjustable mortgages resetting this year. That means that most foreclosures will not occur until 2009. This means the banks will still write off billions of mortgage debt in 2009. The reversion to the mean for housing prices and the continued avalanche of foreclosures is not a recipe for a banking recovery. Home prices have another 15% to go on the downside.”
“It forced the consumer to cut back on eating out and shopping. The marginal players will fall by the wayside. Big box retailers, restaurants, mall developers, and commercial developers are about to discover that their massive expansion was built upon false assumptions, a foundation of sand, and driven by excessive debt.”
Quinn assessed correctly; home prices dropped over 15%, not bottoming until 2012. This global financial collapse ended the significant box expansion phase. Many went under, and the survivors concentrated on their existing resources.
We entered the worst recession since the 1930s.
For Quinn, recently, returning to the comment section of his 15-year-old article revealed the damning psychosis of naysayers populating his article’s comment section.
Despite using unequivocal facts, popular media branded Quinn a pessimistic doomsayer and an idiot. Many commenters said the Fed would save the day and it was time to buy the dip. If they had purchased the dip on the day of his article, they would have lost 44% over the next eight months during a relentless bear market.
Quinn questions whether the current situation is better or worse than 2008.
The economic data of today paints a starkly different picture than when the financial crisis occurred in 2008. Between then and now, national debt has tripled to $31.5 trillion (130% GDP), household debt is 45% higher at $17 million, the Fed’s balance sheet ballooned from $900 billion to an unprecedented level over 8 times that figure ($8.3 trillion). Additionally, inflation was 5.9%, which although lower than current levels (6%), remains near its 17-year peak – while economy growth halved over this same period (-1.5%). It appears certain that our present predicament is significantly worse off compared with what preceded it 12 years ago; thus requiring swift action both toward amelioration as well as prevention further deterioration of conditions moving forward
But all one hears from the financial sector are the mumblings of Pollyanna false prophets and overt bravado from Wall Street analysts covering their insolvent industry.
Mortgage lending is often highlighted as a risk-averse and secure practice. However, it is crucial to understand that liquidity crises arise from distinct factors each time, though some common elements persist. These include lax monetary policies from the Fed, leading to extreme risk-taking by various financial entities. When a crisis ensues, it typically results in bailouts for the ultra-wealthy at the cost of taxpayers, who are left grappling with the financial implications of inflation and relentless money printing at the Fed printing press.
In this déjà vu-like scenario, the current banking crisis bears an uncanny resemblance to the 2008 financial meltdown, a situation that only honest analysts with knowledge of math and history foresaw.
While toxic mortgages were the crux in 2008, this time around the contagion has spread throughout the entire financial ecosystem, thanks to years of the Fed’s 0% rates. With access to inexpensive debt, the value of almost everything has surged by 30% to 50%. The low-interest environment has spurred extreme risk-taking by various stakeholders, from bankers to politicians. As inflation rears its head following Powell’s policies, it’s becoming clear who may have been swimming without their proverbial trunks.
None of the Kings have clothes. None.
Amidst global banks’ fervent focus on diversity, championing transgender rights, combating climate change, and adopting ESG investing practices, a brewing financial storm has largely been overlooked. The presence of 1% bonds on these banks’ portfolios now translates to losses as interest rates surge to 4%. This situation eerily echoes 2008’s toxic mortgage crisis, with the current toxic asset being U.S. Treasuries. The undeniable truth lies in mathematics, but with stubborn 6% inflation figures, Powell is left with limited options to tackle the issue.
The vulnerability of Silicon Valley Bank and Signature Bank became evident when depositors caught a glimpse of the cracks, leading to a bank run and, consequently, an abrupt financial crisis.
In the midst of an alleged regional banking turmoil, a narrative is spread among the financial community that this crisis is isolated only to smaller banks.
Wall Street giants and their media slaves appear to be stirring the pot, enticing depositors from smaller institutions to flock to the supposed “safety” of the Wall Street bank. Yet, these juggernauts are grappling with a silent crisis of their own doing — staggering unrealized losses looming in the shadows. It is only a matter of time until these financial behemoths must confront the consequences of their unsustainable practices. Desperation breeds cunning tactics – but, as the saying goes, you can only run from the truth for so long.
Credit Suisse Group AG is a world-renowned global banking and financial services firm with headquarters in Switzerland. It upholds offices on all major international financial hubs, as well as being one of the nine elite “bulge bracket” banks providing investment banking, private banking, asset management and shared services across borders. Its reputation for confidentiality has been unparalleled making it highly sought after by clients worldwide while The Financial Stability Board have recognized its importance to be considered systemically important among an exclusive club of globally influential players. Additionally, Credit Suisse holds privileged status at the Federal Reserve Bank in the United States too creating further appeal within this competitive sector.
Credit Suisse is the batshit crazy aunt rattling her chains in the basement. Get ready for the ride, Credit Suisse impending downfall will shake the foundation of the fragile European financial system. Echoing, Lehman Brothers, the collapse of Suisse could unleash a web of contagion across the global financial landscape. Fat with its mysterious derivatives, they (derivatives) hold the power to turn this side-show ride into a full-blown shit-show. The ride and end result will not be pleasant.
In the dynamic world of banking, reserves for lending are dwindling for both small and large players. This precarious economy continues to teeter, held together by the deceptive power of debt issuance. However, without this crucial financing tool, the whole system may crumble, impacting everything from consumer behavior and geopolitical tensions to the trendy (woke) initiatives of corporate and political giants. Time will tell if a more sustainable economic structure will emerge or if this grand illusion will persist.
For nearly two years, workers have experienced a decline in real wages, fueling a banking crisis and causing restricted lending. As savings run dry, consumers increasingly rely on credit cards, foreshadowing a severe recession. This drop in spending and credit availability will likely prompt job losses worldwide. Escalating unemployment could result in defaults on sizable mortgage and auto loans, potentially replicating the financial crisis of 2008 and 2009.
Prepare to witness the captivating drama of an economy in distress, where all eyes turn to the mighty Federal Reserve for salvation. Yet, this seemingly all-powerful entity grapples to maintain control in the face of a rapidly evolving financial landscape. The stakes have been raised as the Fed’s balance sheet has surged nine-fold from a mere $900 billion in 2008. Caught in the web of quantitative easing, this economic superhero must navigate the perilous purchase of colossal quantities of mortgages and Treasury bonds while maneuvering within suppressed rates, unleashing the fury of unanticipated losses.
Truly, the formidable force of inflation has been unleashed, sweeping through the economy like an insatiable beast, now woven into its very fabric. Companies that have cautiously dished out a meager 2% growth in employee salaries for the past decade now grapple with the relentless demand for a staggering +4%. Undeniably, the tide of inflation, birthed from the Fed’s very own actions, has begun to surge beyond measure. Immerse yourself in a world where economic balance precariously teeters, and the all-powerful Fed faces the consequences of a monetary twist of fate.
Quantitative Easing (Q.E.)
Quantitative easing is a powerful monetary tool used by central banks to stimulate economic activity. By purchasing securities from the open market, QE injects liquidity into the banking system and lowers interest rates, allowing for greater investment and lending opportunities. In recent years, it has become an increasingly popular option for governments looking to bolster their economies during times of crisis or stagnation.
The Fed’s looming decision to cut interest rates and potentially re initiate Quantitative Easing (Q.E.) puts the economy in a risky position, with double-digit inflation rates threatening to emerge. Conversely, abstaining or increasing rates may result in the collapse of the banking system. This dilemma, akin to being trapped between a rock and a hard place, is dictated by Wall Street’s influence on Powell. Thus, it is predicted that he will opt for slashing rates, reinstating Q.E., and ultimately compromising the financial well-being of the American public, reflecting a similar situation that unfolded in 2008.
The U.S. banking system is essentially insolvent. The Treasury, Federal Reserve, FASB, and Congress conspire to keep the American public in the dark for as long as possible. They are trying to buy time and prop up these banks to convince enough fools to give them more capital. They will continue to write off debt for many quarters to come. We are in danger of duplicating the mistakes of Japan in the 1990s by allowing them to pretend to be sound. We could have a zombie banking system for a decade.
IBID
In 2008, we missed our chance to face the music and address the banking crisis’s underlying issues. Today, the financial health of our nation, the financial wellbeing of the average American, the Federal Reserve, and the banking system have all deteriorated significantly. Our leaders chose to put on a facade (perfuming a turd) of stability instead of making tough decisions, and we allowed it. Now, we must brace ourselves for the consequences of this misstep, as predicted by economist Ludwig von Mises a hundred years ago.
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner because of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
ludwig von mises
Quinn recommended 15 years ago a reduction of deposit exposure at all financial institutions, to not invest in financial stocks, and follow the writings of honest, truthful analysts and his critical piece of advice, as solid now as it was then — yet non one paid attention:
When you see a bank CEO or a top government official tell you everything is alright, run for the hills. They are lying. They didn’t see this coming and have no idea how it will end.
ibid
Stock up on food, shit-paper and the pew-pew because we have been thrown headfirst off the cliff towards the a global financial calamity. If you are not familiar with the Fourth Turning (4T), get there and analyze what you read against what you see and hold both against the assessment of your gut and what you know to be true.
The 4T is intensifying, we are near to a WWIII pandemonium of conflict, and if you are of the type that believes the shit being fed us is chocolate, well—I’ll see you on the other side and maybe, just maybe, sprinkle some dirt over your corpse and consider a half-hearted prayer before pressing forward tending to my family and to those of logical mind — we are about to be thrust into the fuck-show.
cl
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Amadeo, K. (2021, October 30). How derivatives could trigger another financial crisis. The Balance. Retrieved March 18, 2023, from https://www.thebalancemoney.com/role-of-derivatives-in-creating-mortgage-crisis-3970477
Duca, J. V. (n.d.). Subprime mortgage crisis. Federal Reserve History. Retrieved March 18, 2023, from https://www.federalreservehistory.org/essays/subprime-mortgage-crisis#:~:text=The%20subprime%20mortgage%20crisis%20of,by%20rapidly%20rising%20home%20prices.
Quinn, J. (2023, March 15). Is the U.S. Banking System Safe? – 15 years later. The Burning Platform. Retrieved March 18, 2023, from https://www.theburningplatform.com/2023/03/15/is-the-u-s-banking-system-safe-15-years-later/#more-296673
Team, T. I. (2023, January 12). What is quantitative easing (QE), and how does it work? Investopedia. Retrieved March 18, 2023, from https://www.investopedia.com/terms/q/quantitative-easing.asp
Wikimedia Foundation. (2023, March 12). Michael Burry. Wikipedia. Retrieved March 18, 2023, from https://en.wikipedia.org/wiki/Michael_Burry
Wikimedia Foundation. (2023, March 16). The big short (film). Wikipedia. Retrieved March 18, 2023, from https://en.wikipedia.org/wiki/The_Big_Short_(film)
Wikimedia Foundation. (2023, March 18). Credit Suisse. Wikipedia. Retrieved March 18, 2023, from https://en.wikipedia.org/wiki/Credit_Suisse
