According to new findings from The Atlantic The U.S. financial system could be on the cusp of catastrophe. This time, we might not be able to save it. here are the thoughts, enjoy! What Do You Guys Think? Will Get Another Recession? Should Banks Be Reformed?
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⏰TIMESTAMPS⏰
00:06 AFTER MONTHS of living with the coronavirus pandemic
00:47 You may think that such a crisis is unlikely
01:15 The financial crisis of 2008 was about home mortgages
02:10 The federal government stepped in
02:47 To prevent the next crisis, Congress in 2010 passed
03:36 The reforms were well intentioned, but
04:44 Chapter 2
04:53 The two securities are remarkably alike
05:32 Unless you work in finance, you probably haven’t
06:29 Despite their obvious resemblance to the villain
07:04 These sanguine views are hard to square with reality.
08:06 SINCE 2008, banks have kept more capital on hand
09:12 How can these banks justify gambling so much money
10:27 But that AAA rating is deceiving
10:50 So what sort of debt do you find in a CLO?
11:46 while the banks restrict their CLO investments
12:06 How can the credit-rating agencies get away with this?
13:06 For CLOs, the rating agencies determine the grades
13:48 Banks do not publicly report which CLOs they hold
14:30 We are not in the midst of a conventional downturn.
15:10 Chapter 3
15:20 Even before the pandemic struck
15:57 Under current conditions, the outlook
16:31 The prices of AAA-rated CLO layers tumbled in March
17:26 Meanwhile, loan defaults are already happening
17:41 IF LEVERAGED-LOAN defaults continue
17:50 For the moment, the financial system seems relatively stable
18:09 Later this summer,
19:08 As the banks begin to feel the pain of these defaults
19:52 The banks themselves may reveal that their CLO investments
20:26 Thus far, I’ve focused on CLOs because they are the most troubling assets
21:51 The early losses from CLOs will not on their own
23:03 You can perhaps guess much of the rest:
23:24 But this time, the bailout proposal will likely face stiffer opposition
24:26 And then, sometime in the next year, we will all stare into the financial
24:45 UNTIL RECENTLY, at least, the U.S. was rightly focused on finding ways
25:20 The financial sector isn’t like other sectors. If it fails,
25:57 It is a distasteful fact that the present situation
26:23 If we muster the political will to do so
27:21 If we do manage to make it through the next year
SCRIPT:
AFTER MONTHS of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.
You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.
The financial crisis of 2008 was about home mortgages. Hundreds of billions of dollars in loans to home buyers were repackaged into securities called collateralized debt obligations, known as CDOs. In theory, CDOs were intended to shift risk away from banks, which lend money to home buyers. In practice, the same banks that issued home loans also bet heavily on CDOs, often using complex techniques hidden from investors and regulators. When the housing market took a hit, these banks were doubly affected. In late 2007, banks began disclosing tens of billions of dollars of subprime-CDO losses. The next year, Lehman Brothers went under, taking the economy with it.
The federal government stepped in to rescue the other big banks and forestall a panic. The intervention worked—though its success did not seem assured at the time—and the system righted itself. Of course, many Americans suffered as a result of the crash, losing homes, jobs, and wealth. An already troubling gap between America’s haves and have-nots grew wider still. Yet by March 2009, the economy was on the upswing, and the longest bull market in history had begun.
To prevent the next crisis, Congress in 2010 passed the Dodd-Frank Act. Under the new rules, banks were supposed to borrow less, make fewer long-shot bets, and be more transparent about their holdings.......
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