A ticking time bomb was planted in the economy back in 2008. Because the Wall Street perps who caused the 2008 crash designed the response to the crash, the seeds were planted for a repeat performance. Talking heads on the financial networks are trying to convince investors that the current stock market downturn has nothing to due with any structural economic problems. The stock market carnage is just a temporary bump in the road caused by the Coronavirus and once the virus passes stocks will again be off to the races and recover their losses. That could not be further from the truth because the real story is not the stock markets. Just as in 2008 it’s the credit markets.
So first let’s have look at how much have things changed since 2008 thanks to the “reforms” put in place?
To big to fail banks:
JPMorgan Chase (JPM) sits atop that list of banks that could threaten global stability, according to new rankings published on Tuesday by international regulators.
JPMorgan has amassed an incredible $2.56 trillion in assets. That's nearly twice as much as at the end of 2006 when the subprime mortgage bubble was beginning to burst.
Bank of America (BAC) and Deutsche Bank are ranked one level below JPMorgan on the "systemically important" list published by the Financial Stability Board. BofA's asset footprint has soared by 56% since the end of 2006 to $2.28 trillion. Deutsche Bank's (DB) asset size has increased by 21% over that span, according to FactSet.
Wells Fargo (WFC), which acquired failing Wachovia during the financial crisis, is sitting on $1.93 trillion. That's up nearly 300% since the end of 2006.
Big banks in China are also growing at a rapid pace. China's four systemically important banks have more than tripled their asset sizes over the last 10 years, according to S&P Global Market Intelligence. Industrial and Commercial Bank of China (IDCBF) is the world's largest bank, with $3.76 trillion in assets. That's up from $1.11 trillion at the end of 2006.
"If and when another crisis hits, the biggest players will be far larger than they were in the last crash," S&P Global Market Intelligence wrote in a report.
The 2008 economic weapon of mass destruction... Toxic debt and leveraged bets against it:
So we learned our lesson in 2008 with the wanton proliferation of toxic debt and allowing Wall Street to increase that risk exponentially by making leveraged bets against that debt. Right? Wrong. Here is the fatal gift that Wall Street made sure would keep giving. It was too profitable to be regulated out of existence.
In February, a report from the Organisation for Economic Co-operation and Development showed that corporate debt hit a record $13.5 trillion at the end of 2019. Furthermore, it warned that because this debt pile is increasingly long-dated and low in credit quality, the negative effects of an economic downturn on the non-financial corporate sector may be amplified."
Amid the avalanche of debt, the sharp growth in lower-quality corporate bonds, just one notch above junk, represents a special concern. Investors hold nearly $4 trillion in these bonds, including $2.5 trillion from U.S. companies, according to the credit rating agency Standard & Poor’s.
Some of America’s best-known companies, including AT&T, General Motors and CVS Health, have splurged on borrowed cash. This year, the weakest firms have accounted for most of the growth and are increasingly using debt for “financial risk-taking,” such as investor payouts and Wall Street dealmaking, rather than new plants and equipment, according to the IMF.
The total value of mortgages and the total value of subprime “toxic” mortgages in 2008 was lower than the amount of toxic corporate debt today. And in addition to corporate debt: U.S. consumer debt is at $14 trillion, $2.3 trillion above what it was in 2008.
This time around things are much, much worse than 2008, particularly as the whole economy effectively cantilevers off multiple financial market bubbles," Albert Edwards, a global strategist at Societe Generale
The first domino to fall is likely to be the American Shale oil industry which is floating on a mountain of toxic debt, was already in serious trouble and makes up over half of US oil production. Thanks to the combined effect of the Coronavirus and an all out price war by the Russians and Saudis the industry is about to experience a massive chain of bankruptcies and defaults on loans.
The Trump effect:
Finally Trump took everything bad in our financial system and dialed it up to 11. More debt, more leverage, less oversight, a trade war and a Fed bullied into propping up stocks rather than keeping the economy stable.
The Consequences:
We are about to experience an economic meltdown worse than 2008. Those who do not learn from history are condemned to repeat it.
The Good News.
The combination of the gross incompetence and criminal malfeasance of the Trump administration in dealing with the double whammy of pandemic and financial crisis will destroy the Republican party in 2020, just as it did in 2008. So, despite the Democrats, Trump will get wiped out. Not by the Democrats but by Trump himself.
The Bad News:
FDR saved capitalism because he did not have the bankers design the New Deal. No, as FDR said he welcomed the bankers hatred. Had FDR put Wall Street in charge of the recovery in 1929 the US will have likely gone the way of Europe and collapsed into fascism and nativism.
So how will Biden handle the bailout and recovery? Well, one of the names on his short list for treasury is Jamie Dimon, CEO of JP Morgan! Jamie f*cking Dimon, the guy whose criminal behavior was a leading cause of the 2008 crash. A guy who the Democrats should have prosecuted and jailed but now are considering have run the response to the coming crash? Talk about putting the fox in charge of the hen house. Once again Wall Street will get bailed out and Main Street will get screwed.
Looks like we are going to win the battle only to lose the war. There is a way to prevent that. Have Warren as Treasury Secretary and head of the task-force charged with the economic crisis response. Unfortunately there is a snowballs chance in hell of that happening. One - The Wall Street donors are opening up the funding spigots for Joe. Warren would be a deal breaker . No more money and some would switch to Trump. Two - Joe agrees with the bankers not Warren.
It’s hard to say what can be done. The next Trump is likely to be worse than the current one and it seems that once elected with a huge mandate Democrats will turn chicken salad into chicken sh*t. Wall Street will call the shots on the economy and that will rapidly pave the way for consequences worse than I care to contemplate. But Thank God we didn’t vote for any big changes. Slow and steady right over the cliff.
