I believe you’re right, and I believe all the ‘crisis averted, folks’ talk in the mainstream press is just the propagandized narrative they’re trying to sell so that us ‘peasants’ don’t panic. There’s all kinds of shakiness in the financial news; the Wall Street Journal has articles today about Charles Schwab assuring its clients that the firm will be able to weather the losses in its bonds’ valuations, and macro hedge funds are in trouble because of the financial turmoil. Shakiness & unease!
Incidentally, if we’re playing the game of Credit Suisse being Bear Stearns, who do you see as Merrill Lynch?
Depending on when/if FRC gets acquired by one of Dimon's Eleven, that would be First Republic.
Although PacWest and Western Alliance are also in the running, and there's no telling what we should make of Deutsche Bank--that bank has been a bigger mess than Credit Suisse and for far longer. Credit Suisse would have been a bad bank failure for Europe to experience, but Deutsche will likely be an order of magnitude worse. That's how tied into everything DB is.
And even Commerzbank isn't large enough to absorb Deutsche if it's on the brink of total collapse.
Which means at some point the metaphors stop being Bear Stearns and Lehman Brothers and start being Credit Anstalt. That was the 1931 bank failure that made the Great Depression a truly global phenomenon.
Yeah, Commerzbank is only about 1/3 the size of Deutsche Bank. There is no bigger fish in Germany that Deutsche could be folded into. I'm not sure nationalizing them would work either, since Germany doesn't have its own currency that it can paper things over with. So Deutsche Bank failing would be a major tipping point.
Wow - truly scary to be contemplating another crash on the scale of 1929-1932 (to 1938!). Most Americans today think the crash started in October of 1929, but there were actually several shaky downturns starting in April, if I remember history correctly. History rhyming?
And yes, the Wall St Journal has concerned articles about Deutsche Bank today, too.
Right now, this crisis is mostly one of people panicking. Credit card debt is still the leading candidate for loan defaults, and residential mortgages are not showing elevated default activity yet.
Which means default risk on those underwater assets is still low. Interest rate risk is what's pushing the valuations down. If banks can simply hold on to those assets and not dig the hole any deeper, if the assets can just roll off normally, the situation resolves itself.
Even if banks can't let the assets roll off normally, and the political consensus builds for an intervention, the effective intervention would be something akin to Resolution Trust Corporation, which was the vehicle by which the government dealt with the S&L crisis in the 1980s.
Gather the underwater debts into a stable portfolio and let them roll off. That would functionally end the crisis at least in the US.
I believe you’re right, and I believe all the ‘crisis averted, folks’ talk in the mainstream press is just the propagandized narrative they’re trying to sell so that us ‘peasants’ don’t panic. There’s all kinds of shakiness in the financial news; the Wall Street Journal has articles today about Charles Schwab assuring its clients that the firm will be able to weather the losses in its bonds’ valuations, and macro hedge funds are in trouble because of the financial turmoil. Shakiness & unease!
Incidentally, if we’re playing the game of Credit Suisse being Bear Stearns, who do you see as Merrill Lynch?
Depending on when/if FRC gets acquired by one of Dimon's Eleven, that would be First Republic.
Although PacWest and Western Alliance are also in the running, and there's no telling what we should make of Deutsche Bank--that bank has been a bigger mess than Credit Suisse and for far longer. Credit Suisse would have been a bad bank failure for Europe to experience, but Deutsche will likely be an order of magnitude worse. That's how tied into everything DB is.
And even Commerzbank isn't large enough to absorb Deutsche if it's on the brink of total collapse.
Which means at some point the metaphors stop being Bear Stearns and Lehman Brothers and start being Credit Anstalt. That was the 1931 bank failure that made the Great Depression a truly global phenomenon.
Yeah, Commerzbank is only about 1/3 the size of Deutsche Bank. There is no bigger fish in Germany that Deutsche could be folded into. I'm not sure nationalizing them would work either, since Germany doesn't have its own currency that it can paper things over with. So Deutsche Bank failing would be a major tipping point.
Wow - truly scary to be contemplating another crash on the scale of 1929-1932 (to 1938!). Most Americans today think the crash started in October of 1929, but there were actually several shaky downturns starting in April, if I remember history correctly. History rhyming?
And yes, the Wall St Journal has concerned articles about Deutsche Bank today, too.
How much rhyming is still to be determined.
Right now, this crisis is mostly one of people panicking. Credit card debt is still the leading candidate for loan defaults, and residential mortgages are not showing elevated default activity yet.
Which means default risk on those underwater assets is still low. Interest rate risk is what's pushing the valuations down. If banks can simply hold on to those assets and not dig the hole any deeper, if the assets can just roll off normally, the situation resolves itself.
Even if banks can't let the assets roll off normally, and the political consensus builds for an intervention, the effective intervention would be something akin to Resolution Trust Corporation, which was the vehicle by which the government dealt with the S&L crisis in the 1980s.
Gather the underwater debts into a stable portfolio and let them roll off. That would functionally end the crisis at least in the US.