William Black - US Has 25 Systemically Dangerous Institutions
One thing that could trip up the economy, derivatives or trillions of dollars of global debt bets between big banks in the U.S. Former bank regulator Dr. William Black says, “Not only is the number massive, but 95% of that number is in only six banks in the United States. So, that’s a separate but critical issue. We don’t even have the honesty, and I mean globally, to call these things by their right name. By definition, these are ‘systemically dangerous institutions,’ but we call them ‘systemically important,’ like they deserve a gold star. They’re not important. They don’t help the world. Even the Fed says the way you get on this list is because when you fail, you are likely to cause a global crisis. Notice how I used the word ‘when’ not ‘if.’ We have roughly 25 of these systemically dangerous institutions in the United States. We have around 35 of these systemically dangerously institutions globally on top of that. So, we roll the dice just in the United States 25 times every day to see when the next one will blow up. . . . The fraud makes things very fragile.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with former regulator and banking expert Professor William K. Black.
1 - Why is banking so important for the economy, society and the sustainable development of regions and communities?
2 - What causes the recurring boom-bust cycles and crises?
3 - What policies or banking systems have historically been most successful in avoiding these cycles and crises?
4 - What kind of banking system and banking policy do we need?
5 - While we are at it, can we solve the major problems of our time with this?
6 - What are the policies which are being pushed that we need to oppose?
The biggest post-crisis shift in the investment landscape may be looming, threatening more pain for investors besieged by an uptick in real interest rates and cross-asset volatility.
Bonds and equities are doing something they don’t usually do -- fall in unison -- with the latest move driving their normal inverse correlation to the weakest levels of the past two decades. The relationship has come completely apart only three times in that period, and each episode was followed by an equity market slump, including the last one, in 2014.
More synchronized weakness could also leave investors exposed, upending diversification strategies that helped them hedge losses in either market.
Saying what’s going on is easy. The harder part is pinpointing why. A variety of forces are helping to lift bond yields, from Federal Reserve interest-rate hikes to record government borrowing and concern that the economy could be heading into inflationary overdrive, potentially eroding returns. Some of these factors, combined with the resulting increase in Treasury yields that pushes up borrowing costs across the economy, can also weigh on company profitability and stock prices.
“It’s always hard to judge at what point you hit an inflection point where the correlation between yields and stocks goes into reverse,” says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. “One of the markers to when that happens is typically when you move from a deflationary era or at least a deflationary mindset to more of an inflationary mindset.”
It’s potentially a big deal.
An enduring rupture in positive correlations -- yields moving up along with stocks -- would signal a break in the weak-growth, low-interest regime seen over much of the past decade. Markets driven by negative tandem moves -- yields up, shares down -- have tended to be in the grip of inflationary pressure or potential economic over-heating.
“The correlation between stocks and bond yields has been positive for the better part of the past 20 years,” Bloomberg Intelligence equity strategists Gina Martin Adams and Aditya Kalgutkar wrote in a note on Tuesday. “Each flip to a negative correlation (2006-07, 2013-14) preceded a significant equity-market correction.”
· Sharp stock market sell-offs usually send buyers into the Treasury market, but bonds continued to drop in a rare market move Wednesday as the Dow fell more than 800 points.
· Stocks are reacting to the rise in Treasury yields, which move inversely to price, and strategists say the unusual trading could signal more volatility ahead.
· "There's no flight to safety in bonds. That's a sea change," said one strategist.
Just noticed this thread is no longer just about making money on men's health. Much better posting this stuff here than on the spam filled Trump thread. Thanks doc for making this thread, and f-u for spamming the other : )
Been reading Bonner's stuff for a couple of decades. He always gets the economics right, but I wouldn't trust him on the timing. He would probably agree. The Fed Will Panic…
October 29, 2018
YOUGHAL, IRELAND – A wonderfully fraudulent confrontation is setting up…
On one side is Donald J. Trump, pretending that he has “already made America great again” and blaming the Fed for ruining his beautiful work. He wants the Fed to lower interest rates, not raise them.
On the other is the Fed, pretending that it is the architect and creator of such an amazing economy, and that it’s now guiding it to perfection. It believes it is “normalizing” the economy by gradually raising rates.
So who’s right?
Oh, Dear Reader… You guessed it, didn’t you? They’re both wrong.
First, because the U.S. economy is not “beautiful”… It’s a nasty, dishonest, and dangerous mess.
Second, because both Trump and the Fed are to blame for making it that way.
Third, because there’s no need for The Donald to get on the Fed’s case anyway. They’re both on the same team – actively manipulating the economy for their own benefit and making an even bigger mess of things.
If the two could be brought before an honest judge and properly charged with some combination of chicanery, fraud, and negligence, both would do time… with the Fed getting the heavier sentence.
America’s central bank has been conniving to falsify the markets – and shift wealth to the financial elite – for the last three decades.
Mr. Trump had it right when he was running for office. The Fed, he charged, had created a “big, fat, ugly bubble.” Once in office, he should’ve replaced Janet Yellen immediately with an honest, Paul Volcker-type banker.
Instead, he left the miscreants in place and took credit for the bubble.
Then, as the stock market went up and unemployment went down, he doubled his bets… calling it “his” economy, and saying that he had “already made America great again” with his tax cut, spending increases, and other initiatives.
Of course, the tax cut and spending increases did flatter The Donald’s numbers (“his” numbers).
You can almost always get a little boost by spending money you don’t have. But unless you’re investing in something that will make a profit, you’re just wasting time and money… and making the situation worse.
We got a report last week that half of the extra growth in the Trump years (so far) has come from more government spending – mostly military spending.
Needless to say, there’s no way this is going to pay off. America could defend itself with a fraction of what it now spends on “defense.” Extra money to the Pentagon is just throwing money down a brass rathole.
Another temporary boost seems to have come as an unintended consequence from Mr. Trump’s trade war, as our head of research, Joe Withrow, reported on Saturday.
In anticipation of more tariffs, importers moved orders forward to avoid the additional taxes. This caused a bigger trade deficit with China, but it increased spending… for a while.
Next year, we should see the opposite effect, as orders fall off and inventories decline.
And tax cuts, without offsetting spending cuts, merely shift the burden of government waste to the credit market and future taxpayers.
Without the support of the Fed (which has stopped buying government debt), the government will have to source the credit from the private marketplace, which will push up interest rates.
That’s part of the reason mortgage rates are already over 5%. By our calculation, households lose as much (from higher rates) as they gain from lower taxes.
Higher rates also slow down the whole economy. CNN reports:
Rate hikes are already squeezing these businesses…
Auto and home sales have sputtered in recent months despite high consumer confidence and low unemployment.
The slowdowns have been driven at least in part by the Federal Reserve’s efforts to wean the economy off near-zero rates. Higher borrowing costs are squeezing the auto and real estate industries that benefited from a decade of cheap money.
“It’s very clear that higher interest rates are having an effect on the economy,” said Nicholas Colas, co-founder of DataTrek Research. “The two most expensive purchases a consumer makes are a house and a car. Both are credit-sensitive.”
Now that the economy has recovered from the Great Recession, the Fed is trying to take the training wheels off. That delicate task is even trickier now because of how low rates got – and how long they stayed there.
The auto and real estate industries are at the frontlines of this shift in borrowing costs. Mortgage rates recently topped 5% for the first time since 2011. Even though mortgage rates are still low historically, homebuyers are taking notice.
New home sales tumbled 5.5% in September to the lowest level in nearly two years, the Commerce Department said last week. Sales plunged nearly 41% in the Northeast and dropped 12% in the West, though they rose modestly in the Midwest. New home sales are now 22% below their recent peak in November 2017, according to Barclays.
Nothing to Fear
All of these things – not to mention the largely fraudulent employment numbers – point to a recession coming soon to a neighborhood near you.
Then, Mr. Trump will attack the Fed with even more vigor, claiming that it destroyed his beautiful economy.
He needn’t bother. He has nothing to fear from the Fed.
As we’ve maintained in this space, the Fed was never going to “normalize’”… not with $250 trillion of debt worldwide dependent on abnormally low rates.
At the first sign of crisis, the Fed is sure to panic, with or without encouragement from the president.
And the panic is bound to lead to the worst possible response on the parts of both key players.
The Fed will cut rates to negative levels. It will buy stocks as well as bonds. And like Japan’s central bank, it will become the banker of first and last resort for the federal government.
Yes, the Trump Team will go all-in for more government spending – infrastructure… “defense”… tax credits… you name it! And it will all be funded with funny money from the Fed.
Are you advertising FT subscriptions now? Every article I've ever read from that rag has been in line with pro Keynesian, bread and circus, economics, the same economics that put the US and most of the "free" world in the position it's in now. I'm not about to subscribe just to read whatever article you linked. Might as well post another Krugman fantasy.
But yes, bonds are the asset to watch. But what is one to do with wealth if both stocks and bonds are falling?
Taleb discusses the fragility in the global economy. Says it's more fragile now than in 2007 due to corporate and government debt, and shows the US is already borrowing just to service interest on outstanding debt and starting to "spiral" out of control.
The U.S. Justice Department’s charges against individuals related to the pillaging of the Malaysia investment fund known as 1MDB offers several new insights into the global, multibillion-dollar scandal. But there is something the press is overlooking. The senior Goldman Sachs banker in Asia who pleaded guilty to U.S. bribery and money laundering charges and his deputy was arrested in Malaysia, was brought by federal prosecutors in Brooklyn, not the Manhattan Southern District of New York which the bankers own right down to the foundation stones. The Brooklyn prosecutors have laid out conspiracy allegations related to Goldman Sachs’s lucrative fundraising for Malaysian wealth fund 1MDB. The fact that he has already pled guilty means he has a cooperation deal to give up more information on the inside of Goldman Sachs.
These criminal charges were not brought by Southern District of New York, but by the prosecutors across the river in Brooklyn. Donald Trump should launch an investigation against the courts in Manhattan just as Franklin D. Roosevelt did back in 1931 with the Seabury Investigations. The political corruption in New York City is pervasive. The press will not write about it and everything remains hidden. Just perhaps the competition of Brooklyn against Manhattan may open a crack through which some light may appear.
I like that he remembers that this deficits thing started with Regan. But he leaves out that it was Nixon who cut the cord and made it possible to do so. Before that the Republicans were seemingly there to reign in the Democrats when the deficits got really crazy.
And that brings us to the true bleep-hole moment of the Trump presidency: Namely, the fact that he and the Congressional GOP have spent 20-months literally desecrating every principal that the once and former party of fiscal responsibility, balanced budgets and minimal public debt ever stood for.
Hard to get away from Trump discussing economics, even if he's more of a symptom than the problem. He will get most of the "credit" in the end.
This Will Be Trump’s Real Legacy
... Using time as the ultimate measure of wealth, today, the top 10% are so wealthy that they can command about four times as much of the laborers’ time as they could in the 1970s.
Voters didn’t necessarily see it that way… But they felt that something wasn’t right. And they voted for Mr. Trump to do something about it. “Make America Great Again,” they pleaded.
Alas, the president did not understand the challenge and missed his opportunity to do anything about it. America could only be made great again by returning to the conservative principles that made it great in the first place – limited government, limited deficits, limited wars, and limited bureaucracy.
Instead, the president increased the deficit and diverted attention with public feuds, border walls, and trade wars.