How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent?
The number of people here defending the system and saying this isn't inflation is mind boggling. Where do you think the money comes from when the government rescues banks? No matter how you slice it, the taxpayer pays through higher fees, higher rates or inflation.
This system of rescuing banks with no prosecution of the people responsible and printing a mountain of money is unsustainable. It's clear that humans will never implement an equitable system and it makes the case for Bitcoin every day...unless you profit from the financial system and then I'm sure you'd be thrilled to kick the can down the road.
Everyone in charge are already extremely wealthy. They have zero skin in the game. J. Powell, 50MM. Yellen, 20MM. There is no ability for them to empathize with a regular taxpayer. Whatever happens their lifestyle will not be impacted one bit.
You have to ask: what drives someone in this position.
And this is a question that only the 200k ultra high net individuals (30mm+) in the world can answer.
I think people stop chasing material possessions and start chasing prestige and power. These people don’t interact with the average joe much so they don’t really care about their opinion, unless you are a populist like Trump for eg. They care about their family friends and peers. So I think it creates a broey kind of culture where you want your peers to be happy with the job you are doing. If you are in finance you want the bankers to be happy. Your political party to be happy etc.
I think it becomes more about making and keeping friends. This stage for life without need for material possessions is all about people and relationships and power.
You just have to imagine yourself with infinite wealth but no friends. You would quickly run out of things to spend it on, and you would just want people to love and respect you.
> How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent?
False dichotomy. The Fed can have good intentions, and a good-but-not-perfect idea what they're doing, and things can be working out, not perfectly, but better than they would in the absence of the Fed.
Is there any evidence for that? Yeah, look at the world before the Fed. Look at the "Panic/Depression of 18xx". There's several to choose from. They're 2008-or-worse events, over and over and over.
The economy is a really complicated system, with lots of humans (and their emotions!) as part of the system. It's really hard to tune it perfectly. That doesn't mean that the Fed is either malicious or incompetent.
> How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent?
Considering how bad things were before the Fed, quite a lot before there is support for the idea that it isn’t making things better.
Bitcoin regularly dives by orders of magnitude worse than the 2008 financial crisis.
Angsty posting like this probably sounded really cool to people in high school, but I'm not sure why we should be impressed with your fact-free faux-radical grifterism.
No, I remember 2007-2008 pretty clearly. That felt much more precarious. Right now it seems pretty clear that if your bank fails you're going to get your money.
That's not to say that this isn't the start of some kind of a financial crisis. But it could be very different from 2008. In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
Precautionary demand for money isn't inflationary - it has a low velocity i.e. just sits, in it's precautionary state. [1 for an example during Covid lockdowns in AU].
The identity is MV=PY where M is money, V is velocity, P is the price level and Y is real income. [2]. A precautionary demand has a lower V.
While a rise in narrow money may be expected, there may be a fall in in broader money, typically much larger than M1, driven by a reduction in sought exposure to non bank financial companies.
During this crisis, the Dow will rise because investors, or those left with a job and money to invest know there will be bailouts. These layoffs will put people back in the office so the cities don’t collapse. I don’t know how that’s going to happen any other way.
I second that this is not like 2008. 2008 felt like the end of the world; this feels like more banks are failing than in a normal recession, but nothing like 2008 - at least so far.
> In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
I disagree on this point. Why do you have to print money to make everybody whole? Because a bunch of money disappeared when the bank went down. You're printing a bunch of money to try to get to net zero. That's not inflationary. In the same way, the Fed's moves in 2008 to create $4 trillion were to replace the $4 trillion that vaporized in the crash, and were not inflationary. (And before anybody raises the point, no, inflation showing up a decade later does not mean that the Fed's actions in 2008 were inflationary.)
Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary.
Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.
Out of curiosity, what makes you think interest rates need to go higher to stop inflation? I know that’s the standard response to inflation, but economics is wildly complex. My read on this situation was always that we needed to decrease the feds balance sheet, get some marginal increase in interest rates, and the rest is supply side.
Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments?
I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?
Again, honest question if I seem to be missing something.
Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds.
The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.
I have no idea but I'm laughing because HN is almost always wrong about these things.
I remember about a year back reading a thread here about the UN FAO food price index showing inflation and most of the responses were about how wrong it was to say that there was inflation, how it won't correlate with that index, etc, etc. The funniest thing about that thread, IMHO, was the surety and confidence of all the responses.
If someone is answering this prompt with confidence, chances are they have no idea what they are talking about.
Note that this thread will have the same Danning-Kruger level of plausible but wrong info as would a banker forum discussing "do you think ChatGPT will be able to drive cars?".
I don't think this will be anywhere close to 2008.
In many ways, SVB was a perfect storm of many factors. High uninsured deposits. Few, tech-savvy despositors. Bad investment choices w.r.t. interest rates. Makes sense why a run was possible.
Other smaller banks - while they may even have similar investment choices - are likely to have many depositors who are under the FDIC limit. So... rationally... they shouldn't call in their money. But also practically, it seems unlikely the masses will be able to effectively coordinate.
I think, however, that this will start a slow long-term erosion of many community banks. How it affects a short-term recession that's looming is hard for anyone to predict. If you're in the camp that the Fed is being too aggressive, maybe this actually slows down interest rate hikes... which might end up being a good thing!
All in all, fundamentals of banks just aren't as bad as '08.
>There are people on HN who weren't alive in 2008.
Are there that many under-15s here?
As someone who lived through the S&L crisis of the Middle Ages, the current agitation doesn't even rise to that level; so far there hasn't been an indication of widespread outright fraud perpetrated by bank execs. This seems more like a less favorable (i.e. less free money from the Fed) environment exposing a few banks with very poor/incompetent management.
The vibes are similar to early 2008. But the financial structure is different. Banks are not overleveraged. Housing is not all adjustable rate.
That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead)
, DB, HSBC) I'm skeptical of.
And a recession feels imminent (felt to me this way even before SVB).
To sum up, I don't think this is over. There's no telling how bad it might get - we might get off fairly easily, might be bad.
One thing that concerns me is that there is much less room for fiscal/monetary action given where inflation is.
I don't understand how residential housing isn't a big bubble. That has to have second order effects yet to be fully felt.
I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.
I think there is still a pathway to things calming down, especially if FRB and other verticalized regional banks can make it over the next few weeks.
I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear.
I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming.
As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.
Every crisis introduces a new type of failure that was not expected. The 2008 came with the realization that the housing market was not as bullet proof as people thought.
This one is no different. It's possible we recover from it very quickly, but it's also possible that the bank run that we saw earlier this month introduce a new type of failures that no one thought was possible. I'm of a curious nature, so I really wonder what's coming.
It’s not a great situation. What we’re seeing is that the fed can’t raise rates to fight inflation without further eroding the balance sheet of big institutions holding large amounts of low yield bonds. So they’re kinda stuck. Hello stagflation.
Raising rates never really reduced inflation anyway… In the 70s Volcker shock, when the oil crisis eased the inflation came down of its own accord, and would have with or without the rate hikes (and the money supply was expanding when the inflation started coming down, which was the exact opposite of their theory - they were trying to reduce the money supply with their rate rises, which they thought would reduce inflation, but they were never able to hit their money supply targets anyway). The Volcker era should be remembered as nothing but a failure.
We saw this problem at the opposite end too - central banks around the world were trying for more than a decade to stimulate economies by dropping rates, many even to the point of taking them negative - and inflation remained stubbornly below the target…
So dropping rates hasn’t worked to stimulate, raising rates hasn’t worked to slow inflation… Why persist with the charade that adjusting rates is an effective policy?
I've talked to a number of bankers over the last week and most of them don't seem to think so. The counter-argument to crisis is that most banks structured their investments differently (soundly) vs. how some banks (e.g. Silicon Valley Bank) structured theirs. There will be some more shakeout of banks with bad investments but not a broader crisis. Of course, take that how you will, but certainly doesn't feel like 2008.
The fact that lots of people are predicting absolute doom is kind of a contrarian indicator to me. If everyone was like meh no big deal it’d be more worrisome.
This isn’t just cynicism. It’s based on how markets work. If lots of people think there’s a possibility of major doom then (1) they are preparing now and (2) it’s likely at least somewhat priced into the market already.
As far as I can tell, the banks aren't misbehaving en masse like they were in 2007. The failures seem to stem from some unfortunate or boneheaded decisions that ignore likely future interest rates.
And TBH... market needs a little cooldown. I am no expert, but I dont like where P/E ratios and such are even after the last mini downturn.
Yes, it feels like it felt just before the 2008 crisis - I was looking into banks financial statements and it was pretty incredible feeling - like wow it can’t be that bad ! Markets didn’t start to tank yet, so you don’t know if you’re crazy or not.
Same here - there are bubble signs everywhere (SPACs, startup valuations, joke money called Dogecoin with market cap of 10B$ !), banks are sitting at >600B$ of unrealized losses - this is all public knowledge.
A 166 years old Swiss bank was bailed out this weekend.
So yeah, it definitely feels like a big crisis ahead. Gradually then suddenly !
How was Credit Suisse bailed out? It seems like they were closed and sold, as happens with a bank that fails.
Bailouts, by 2008 standards, would have been giving money to Credit Suisse so they could continue operating and avoid the fallout of their bad choices.
I think it's more like 2000 when there was a significant over-investment in tech, then Greenspan increased interest rates quickly and all the companies had to adapt to non-free money.
I think the housing market will correct (crash) and tech jobs will be harder to come by for junior folks and people who aren't that great at it. Not a great time to job hop. It won't be horrible like 2008 but it won't be great. Should be over by the 2024 election.
I agree that it feels more like 2000 in some ways. Certainly the crypto space was just as bubble-icious.
2008 when the crunch came it was super bad. Tech companies just froze their product plans. Stopped spending money. Lots of good startups failed through very little fault of their own, when they couldn't ride out the year or two before their customers would spend again.
In 2001 I founded a VC funded startup, and while it was a shit time to be raising money, it was a great time to be hiring. I think we could get to that position again this year. Right now it doesn't feel like good engineers are really struggling to find work though, while in 2001 that was definitely the case, and VCs are definitely getting more cautious.
In 2008 I had the sale of that business fall through as a major SV tech company's CFO said "Nope, we're just not spending any money on anything" after lots of work and terms being sorted out etc. People (CEOs & CFOs) were really scared about contagion and problems well beyond just "tech share are prices falling". I hope we don't get to that point again this time.
That does sound more apples to apples. But without looking anything up, it seems like this time we’ve built up a bigger free-money cliff to fall off of
No. Contagion is so far limited. Economy is still doing relatively well and inflation is still hot. BTFP is arguably QE-lite and has reversed some QT as far as I can tell. When we crash you won't need to ask if we're crashing. It will be obvious.
China reopening trade has been softer than expected so far, but could still put pressure on commodities. Honestly the market is very confused right now. The bond market is saying recession(see rates dropping/curve steepening). The stock market is saying everything is more or less fine. Gold is up, but maybe because of dollar weakness and lack of faith in the fed to maintain a strong dollar.
The upper half of Americans really haven't felt enough pain yet. They still have plenty of money and are keeping demand high. I fully expect us to crash, but I don't think the bank crisis is more than a waypoint on a journey that started with the first rate hike(and, arguably, 2008).
Re: BTFP. It seems like QE-lite to me because banks were sitting on underwater assets that can now be used as collateral at full PAR value meaning the banks can reanimate these dead investments and put that money to work. I would love to be proven wrong but after going back and forth this is my current understanding.
Also, this is HN. Don't expect a high degree of accuracy on economic predictions here. Economics is hard. Even the fed and all of their PhDs can't get it right.
I think there are a lot of unknown risks out there now. Banks at least have the FDIC, the treasury and the fed(at least if you're big enough to present a systemic risk). There are non-bank lenders and other parties in our grossly complex financial system that are also under stress and could be the catalyst for major reversion soon.
Yes. Not that it necessarily means it will be the same scale.
The biggest difference is that this will hit everything that was (knowingly or not) built for a near-zero-interest-rate environment, not just financial companies but speculative tech startups that need lots of VC patience, etc. So probably not as focused on just financial companies.
I doubt this will be as contagious, plus the Fed is completely leaning into interventionism at this point. If only we could get Congress to do their part, we might avoid the crises in the first place.
There will still be a fair amount of pain to go around, but it won't be across the board like 2008.
It is easier to create the future than predicting it (just paraphrasing).
First, I think looking only at the economy is shortsighted: worldwide politics is broken: discussions that are not moving "civilization" forwards with the knowledge we have. For example, I see in the medical sector a lot of mala-praxis that is not connected with the state of art.
Now, returning to economics: I see more a shift than a big crisis. Politicians and regulator cannot put the dirt under the sofa and than needs a change.
I think power is a little bit more distributed and there could be someone with enough imagination somewhere.
Banks are still as greedy as ever in a market that is no longer really theirs, especially in real estate. They have high mortgage rates, yet CDs are approaching 5% which I haven't seen since 2004-2005. I remember socking some $5000 into one of those for 10 years when I had just turned 18... at the time it seemed like a good idea and I was collecting about $50 - $60 a month, which was a good ROI of around 144%. Although it definitely sucks, as I wasn't able to touch it for that long.
In 2008, I just learned about stock market and investing right as the market crashed. I sent about $250 a month towards a variety of stocks every month. In 2023, I took out all my money from the stock market, having lost a bit, but still over $100k, and I bought a condo outright with a mountain view across the street from a hospital which has now become popular with travel nurses. Since it doesn't carry a mortgage, I'm able to completely profit from it and make a way better return than if I were to have left my money in the stock market or even put it in a CD again.
Once there is more confidence / new leadership in our economy, I'll start putting my money back into the stock market. For now, I'm working on obtaining a third property for additional passive income though these interest rates are still insane. My latest quote was around 6% - 7%. Everyone and everything just seems to affect the stock market though it's still got a history of decent returns if you invest in the right places and even more slowly over time, as I had done.
I lived through GFC and 2023 is nothing like that. Sure, some banks will go bust, especially the ones who have duration/liability mismatch. They are systematically unimportant (by definition, else they would have had stricter regulation).
Fed is also doing what common people would prefer to happen - letting equity holders go bust (aka rich people) and protecting deposits (esp 100% of the poor are helped because, again by definition, they have <250K in deposits and those are 100% guaranteed). While protecting deposits may also end up helping the rich, that should not be a big deal in practice because the rich are already savvy enough (like Thiel) to pull out their at-risk deposits and move those to SIBs. So by guaranteeing 100% deposits, Fed encourages rich to continue parking money at smaller regional banks which is again something a lot of common people want - avoiding concentration into 5 big banks.
US debt to GDP ratio has been over 120% since 2020. By IMF definition that's an economic death spiral. By 2028 all of our loan payments for all this printed money will only be going to the interest, and the death spiral will be irreversible with insolvency by 2042. Unless they reset the system or erase debt globally.
> For people who lived through 2007-2008 do you think the current times feel similar to how the last financial crisis unfolded?
Not even slightly. Largely, because it wasn’t preceded by anything like the hollow post-2001 expansion, which, despite being an expansion (the period of aggregate growth between recessions), saw the upper income limit of the four lowest quintiles, and the low limit of the top 5%, all decline in real terms, with all of the gains concentrated in a very narrow segment at the top. It took the top of the bottom quintile until 2018 to bounce back to the 2001 level, for the second quintile that was 2016, for the third 2015, for the fourth quintile and the bottom end of the top 5%, 2013. For most of society, despite the gains at the top between recessions, the crisis was really 2001-2009, not just the “Great Recession” years of 2007-2009.
In 2008 the leading news was mortgage write-down, with the prospect of $200/bbl crude somewhere in the background. In 2023, the leading news is raging inflation (with crude trading for zero just 3 years ago) and people vaguely aware of a lockup in the real estate markets.
I was wondering about this same question today. The reason was a PBS documentary[1] and Jeff Bezos' advice to not make big purchases[2] (which is a stunning stance for the CEO of an online shopping company). I don't know enough to know whether these folks know what they're talking about - I don't think anyone does. Maybe it's a wait and watch game since this is a complex system with millions of variables.
At least the loans were backed by real property in 2008. Homes that will have value and in fact have came back way, way more valuable than the bottom of that crash.
What we have now is a crash in financial instruments themselves.
It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic. Simple supply and demand. More money created, less value money is worth.
History is littered with governments printing too much money, , and their entire civilization comes down.
Even Rome, mighty Rome, was brought down by printing up too much money. Other shit, too, but mainly printing too much money. They don't tell you this, but there ya go.
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Will we pull out? Hope so. Just like in 2008 - we managed to pull out of it.
Housing is a big mess. Plenty of people very close to become homeless, and rooms cost as much as a whole apartment. Communities completely destroyed, good people gone replaced by invisible people.
Isn’t that a crisis?
No. There is absolutely no comparison to the US banking system now and in 2008. In 2008, banks were 4 times more leveraged than they are now, because regulations are far stricter. The source of the crisis was a giant asset class — private residential mortgage-backed securities — whose risks had been systematically hidden by the banks that made them, and the ratings agencies who were complicit.
So, banks were very vulnerable on the one hand due to over leverage, and they all owned a lot of an asset class that became unpriceable once people realized what had happened.
There is nothing like that now. The big issue is unrealized losses on 2020-1 vintage Treasury and government-mortgage securities because of rising rates. The Fed backstopped that by letting banks borrow against the full value of the bonds, not the depreciated value. If those bonds go to expiration, they are paid back in full, and the unrealized losses never become realized.
This is a tempest in a teapot caused by a few babies on Sand Hill Road who decided to destroy SVB, and then whine all weekend to the government to save them. They are libertarians until it hurts the bottom line.
Feels worse to me in scope. Subjective, of course, but the combination of inflation and interest rates seems to have a broader impact. It was easily possible to get through 2008 mostly unscathed unless you were just about to retire, but everyone's already been taking a hit for some time now and it could get worse. I have less confidence in the current admin than in 2008 as well. I 100% expect lies and corruption and for working people to get screwed the hardest.
Nowhere close to the hit everyone was taking from income declines across all income groups except (well, at least the bottom 95%) in the 2001-2007 “expansion” leading into the 2007 Great Recession. (And, also, the much longer period of much higher interest rates, with much higher consumer debt load, leading into the 2007-2009 Great Recession.)
In 2008, a couple of very large banks failed because they were more exposed to assets that every bank held, signaling widespread distress.
The bank failures going on right now are due to still large, but smaller banks courting customers that most banks don't deal with. Other banks still have to deal with the rise in interest rates impacting the value of bonds they hold as capital, but they aren't so uniformly exposed/overexposed as was the case in 2008.
I wonder how much bot written replies I read here. Sure it might be all storm in a glass of water (that's what I read in pretty much every top level quote). But we also know that big biz protects it's status quo and they have used bots before.
Familiar with the "dead internet theory"?
Also why do we like HN? Because here I can interact with some thought leaders: this would be exactly the place I'd point my bots at :)
Sorry for the paranoia spread. Take it with a grain of salt.
If the Fed hadn't stepped up to insure the SVB deposits, we might be in a much worse situation, but as it is this feels like it could possibly maybe get out of control if a whole series of other bad things happen, but probably very unlikely.
There was one day in 2008 where it really felt like 'this is it, it really actually is all going to come crashing down, unless...'.
It’s probably worse since the 2007-9 era tech workers had the new iPhone coming out along with Facebook apps for high speed marketing. Nowadays the tech sector is saturated and home prices are barely coming down unlike in 2009 but mortgage rates are going up as well as apartment costs leading to a double whammy on housing costs.
This one has some similarities to '07 (banks starting to fail, overvalued real estate bubble, ultra low unemployment), but it feels more like the dotcom bust to me.
I feel like higher interest rates are going to be here for a while, and a lot of tech companies are absolutely blowing through cash, about to be caught with their pants down. Anything that isn't profitable will die.
Might as well shake a magic 8 ball, nobody knows and 99% of the people who end up being right are just lucky.
Certainly not much point in asking on HN. If your question isn’t tech related then you aren’t going to get better answers here than you would on Reddit, Quora, Facebook, or your local pub.
I thought so, but ultimately, in terms of relative productivity, who is going to out-compete the US? If we really fear that our ability to produce, that our productivity (in the economic sense) is under threat, then I would genuinely be concerned.
There's lots of little differences, but the big difference is that in 2007-2008 I believed the government/fed would do the right thing and let the banks fail. They didn't, they created massive moral hazard, and communicated clearly they would be bailed out again.
No, I don't think it's the start, and no, it doesn't feel very similar. There's just no obvious asset bubble or other obvious overhang of risk. Credit Suisse and SVB feel like idiosyncratic outliers, not like the first pebbles of an avalanche.
It doesn’t feel similar to me, so far it seems like it’s a known problem and everything has been working ok-ish to prevent it from getting worse - last time it seemed like only very few people were ringing alarm bells and no one cared to listen
No, each time is different. We just had the biggest and longest bull run in history. The economy moves in cycles. The longer the prosperity move the steeper the correction. Something like this is long overdue.
It feels extremely similar. But this time we have had governments causing unemployment to curb inflation. So this crash could very well be much more severe than the 2008/09 one.
> But this time we have had governments causing unemployment to curb inflation.
That’s true of most recessions, because by definition a recession is the period after a business cycle peak, and the peak of business cycles is when inflationary pressures are high and monetary policy tends to be tight to constrain inflation. It is definitely not a difference between today the 2007-2009 Great Recession where interest rates were at 5.25 for an extended period leading into it to fight inflation, a much tighter than they are today significantly tighter than today, and for significantly longer.
And we’ve had nothing like the expansion-with-no-gains-for-the-bottom-95% of 2001-2007 leading up to today, which was a major source of the magnitude of the 2007-2009 Great Recession.
Each financial crisis gets progressively worse. Eventually will come one that we can't escape. That will make the Great Depression of the 1930s look like a picnic.
Yes. Everything is fine until it wasn't, and it was clear to those paying attention that things were out of whack for a little while prior to the big implosion.
ehh, not really. Watch The Big Short to get an idea of what was going on. Bankers were giving money to anyone with a pulse so they could buy a 3rd investment house. Liar loans, subprime mortgages, option-ARMS, etc. The real estate market last year was nuts but nothing like that.
Yes, car loan delinquencies are up and mortgage delinquencies are trending up but mortgage delinquencies are still at some of the lowest levels (~1%) in the past 15 years.
About a third of housing sales now go to investors. We really don’t know what their balance sheets look like - but presumably someone is lending them money. Some fraction of those loans will be variable interest rate.
Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.
2008 was Wall Street convincing folks to hand over cash for magical beans called mortgage backed securities. When that bad trip caused companies like AIG to vomit cash, the US govt bailed them out because they weren’t the only ones who bought magical bean securities. The entire US financial system was facing collapse. You can Wall Street a fool. But they got bailed out; private investors got squat. Who is the fool? Private profits and public bailouts is modern US capitalism. In the meantime, some will jump up and down swearing bailing out student loan borrowers is murder.
It feels a bit more like 2006 since the real economy is still mostly flying along fine and most of the business page pronouncements from 'respected leaders' are that a soft landing is still in our future. There's a lot more unrest among average people though, back then you couldn't really find anyone in your normal life that thought it would crash.
It isn't the same though, the pandemic and the inflationary period that we hit were not anything like what happened in the build up to the housing bubble.
At the same time I think some people think we're back to the 1970s and inflation and stagflation are here to stay. That is unlikely to happen because this Fed speaks very highly of Volker and has signaled their willingness to crash the economy into a wall in order to tame inflation. This isn't the 1960s Fed that grew up during the 40s and 50s and wanted to prevent a Great Depression at all costs so was running the economy hot. There will be a recession and unemployment will rise, and the Fed has done everything other than come out and state explicitly that is what is going to happen.
Because of the increase in interest rates things are going to break. We just saw one example of that, but there's also going to be a corrosive effect on bad companies/investments as the zombie ones that required rolling over loans at low interest rates see their borrowing costs increase and that pushes them into being liquidated. The blowup that I'm expecting is in commercial real estate and CMBS. The top will likely come off the housing market, and that can't possibly go down that easy without a lot of economic pain.
At the same time I don't think anything has fundamentally changed. When unemployment starts to spike up significantly again and the system starts to lock up, then they'll drop rates back down to zero again. It'll also probably work, since with enough destruction of zombie businesses and a glut of unemployment there won't be an immediate rebound in employment or inflation.
Might not happen this year though. The Fed rate tightening cycle has still not quite ended yet, and its usually 6-12 months after the tightening cycle ends that it gets bad. We can still see a counter-trend rally into e.g. a double top in the markets. A lot of people believe that interest rates rising are what causes economy pain, not holding interest rates at a higher rate (they thing it is an "edge trigger" rather than a "level trigger") and those people are likely to try to throw a party after the Fed stops raising rates. Or this cycle might be different and the aggressive Fed actions might start to blow up more stuff quicker this time, I can't really tell you (if I could I could make a ton of money, but I have no firm idea of the near-term trajectory of the economy).
Yes - 2008 was like stepping on a land mine, and right now it feels like we’re staring at multiple rocket launchers pointed right at us.
Someone said they remember 2007-8 vividly and it felt precarious. I don’t, but from what Hollywood tells me, this person must be Michael Burry. Now we have a bunch of money that has been printed, which has done nothing to improve the economy and just caused a lot of wealth disparity and inflation. The Fed trying to get that under control is one of 2 concrete reasons for SVB. It has probably caused issues at many banks (they’re bag holding) with the only difference being their depositors are less reactive. What’s the solution? Print more money. Add to that geopolitical conflict between the US - which (let’s be real) doesn’t really stand for anything anymore other than the value of a dollar - and BRICS - which doesn’t stand for anything other than devaluation of the dollar. Putin once said the US economy is based on housing prices and he’s more or less right. It’s all tech and finance - which is either exploitative or can be done anywhere. BRICS has most of the resources and most of the production capability. A globalized world is more efficient and better, but debts need to be paid.
I think that's highly likely. Banks aim to maximize their profit margins and that necessarily means taking risks. When regulators close one loophole, banks find another one to exploit. This is a game of whack-a-mole that the regulators cannot hope to win.
SVB, Credit Suisse, and Signature Bank aren't outliers. These are just the first banks to get hit by the crisis. It's almost certain that most other banks have been playing exactly the same kinds of games and betting on a low interest rate environment. Now that the inflation has risen to unacceptable levels, the Fed has no choice but to raise rates. This will translate into further chaos in the banking system.
If the rates don't go up then we'll see inflation keep climbing, and this will cool investment because it's practically impossible for companies to produce any meaningful returns in high inflation environment. A company right now has to show consistent 6% growth simply not to lose money right now.
Furthermore, 64% of Americans are now living paycheck to paycheck [1]. 37% of people are working two full time jobs [2]. And typical debt is around 100k [3].
So, over half the population has no savings and can barely makes ends meet while nearly 40% of people are already working as much as humanely possible. If cost of living keeps climbing a huge chunk of population will become insolvent, we'll see large numbers of people defaulting on their debt. Banks are the ones who are holding a lot of this debt, and as people start defaulting the banks will start failing.
Meanwhile, overall economic activity will cool with people cutting discretionary spending in order to afford necessities. This will make companies go out of business creating mass unemployment, and further feeding into the debt crisis.
Incidentally, we're right on schedule for a crash in the boom/bust capitalist cycle [4].
shagymoe|2 years ago
How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent?
The number of people here defending the system and saying this isn't inflation is mind boggling. Where do you think the money comes from when the government rescues banks? No matter how you slice it, the taxpayer pays through higher fees, higher rates or inflation.
This system of rescuing banks with no prosecution of the people responsible and printing a mountain of money is unsustainable. It's clear that humans will never implement an equitable system and it makes the case for Bitcoin every day...unless you profit from the financial system and then I'm sure you'd be thrilled to kick the can down the road.
erlich|2 years ago
You have to ask: what drives someone in this position.
And this is a question that only the 200k ultra high net individuals (30mm+) in the world can answer.
I think people stop chasing material possessions and start chasing prestige and power. These people don’t interact with the average joe much so they don’t really care about their opinion, unless you are a populist like Trump for eg. They care about their family friends and peers. So I think it creates a broey kind of culture where you want your peers to be happy with the job you are doing. If you are in finance you want the bankers to be happy. Your political party to be happy etc.
I think it becomes more about making and keeping friends. This stage for life without need for material possessions is all about people and relationships and power.
You just have to imagine yourself with infinite wealth but no friends. You would quickly run out of things to spend it on, and you would just want people to love and respect you.
AnimalMuppet|2 years ago
False dichotomy. The Fed can have good intentions, and a good-but-not-perfect idea what they're doing, and things can be working out, not perfectly, but better than they would in the absence of the Fed.
Is there any evidence for that? Yeah, look at the world before the Fed. Look at the "Panic/Depression of 18xx". There's several to choose from. They're 2008-or-worse events, over and over and over.
The economy is a really complicated system, with lots of humans (and their emotions!) as part of the system. It's really hard to tune it perfectly. That doesn't mean that the Fed is either malicious or incompetent.
dragonwriter|2 years ago
Considering how bad things were before the Fed, quite a lot before there is support for the idea that it isn’t making things better.
nwah1|2 years ago
Angsty posting like this probably sounded really cool to people in high school, but I'm not sure why we should be impressed with your fact-free faux-radical grifterism.
UncleOxidant|2 years ago
That's not to say that this isn't the start of some kind of a financial crisis. But it could be very different from 2008. In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
zhte415|2 years ago
The identity is MV=PY where M is money, V is velocity, P is the price level and Y is real income. [2]. A precautionary demand has a lower V.
While a rise in narrow money may be expected, there may be a fall in in broader money, typically much larger than M1, driven by a reduction in sought exposure to non bank financial companies.
[1] https://www.rba.gov.au/publications/bulletin/2021/mar/cash-d...
[2] https://en.m.wikipedia.org/wiki/Quantity_theory_of_money
sbelskie|2 years ago
https://marginalrevolution.com/marginalrevolution/2023/03/ba...
peyton|2 years ago
testbjjl|2 years ago
adamredwoods|2 years ago
https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_fi...
AnimalMuppet|2 years ago
> In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
I disagree on this point. Why do you have to print money to make everybody whole? Because a bunch of money disappeared when the bank went down. You're printing a bunch of money to try to get to net zero. That's not inflationary. In the same way, the Fed's moves in 2008 to create $4 trillion were to replace the $4 trillion that vaporized in the crash, and were not inflationary. (And before anybody raises the point, no, inflation showing up a decade later does not mean that the Fed's actions in 2008 were inflationary.)
somewhat_drunk|2 years ago
nostrebored|2 years ago
hanoz|2 years ago
Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.
nscalf|2 years ago
qaq|2 years ago
mrzimmerman|2 years ago
I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?
Again, honest question if I seem to be missing something.
unknown|2 years ago
[deleted]
alxmng|2 years ago
The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.
chrismcb|2 years ago
namrog84|2 years ago
jnmandal|2 years ago
I remember about a year back reading a thread here about the UN FAO food price index showing inflation and most of the responses were about how wrong it was to say that there was inflation, how it won't correlate with that index, etc, etc. The funniest thing about that thread, IMHO, was the surety and confidence of all the responses.
If someone is answering this prompt with confidence, chances are they have no idea what they are talking about.
radiator|2 years ago
throwayyy479087|2 years ago
meghan_rain|2 years ago
throwayyy479087|2 years ago
Finance Twitter is likely a better source.
mojo74|2 years ago
Rastonbury|2 years ago
andrewmcwatters|2 years ago
varunjain99|2 years ago
In many ways, SVB was a perfect storm of many factors. High uninsured deposits. Few, tech-savvy despositors. Bad investment choices w.r.t. interest rates. Makes sense why a run was possible.
Other smaller banks - while they may even have similar investment choices - are likely to have many depositors who are under the FDIC limit. So... rationally... they shouldn't call in their money. But also practically, it seems unlikely the masses will be able to effectively coordinate.
I think, however, that this will start a slow long-term erosion of many community banks. How it affects a short-term recession that's looming is hard for anyone to predict. If you're in the camp that the Fed is being too aggressive, maybe this actually slows down interest rate hikes... which might end up being a good thing!
All in all, fundamentals of banks just aren't as bad as '08.
bbunix|2 years ago
yborg|2 years ago
Are there that many under-15s here?
As someone who lived through the S&L crisis of the Middle Ages, the current agitation doesn't even rise to that level; so far there hasn't been an indication of widespread outright fraud perpetrated by bank execs. This seems more like a less favorable (i.e. less free money from the Fed) environment exposing a few banks with very poor/incompetent management.
nashashmi|2 years ago
Albeit it's better than talking to ChatGPT.
philipwhiuk|2 years ago
1986 is not the Middle Ages. This one fraction suggests to me I'm responding to a hallucinating bot.
shrimp_emoji|2 years ago
neural_thing|2 years ago
That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead) , DB, HSBC) I'm skeptical of.
And a recession feels imminent (felt to me this way even before SVB).
To sum up, I don't think this is over. There's no telling how bad it might get - we might get off fairly easily, might be bad.
One thing that concerns me is that there is much less room for fiscal/monetary action given where inflation is.
xnx|2 years ago
humanrebar|2 years ago
I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.
sklargh|2 years ago
I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear.
I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming.
As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.
WalterSear|2 years ago
Banks are holding $600+ billion in currently worthless bonds.
https://www.google.com/search?q=620+billion+dollar+bonds+ban...
antibasilisk|2 years ago
But the people are, consumer debt is out the wazoo
p-o|2 years ago
This one is no different. It's possible we recover from it very quickly, but it's also possible that the bank run that we saw earlier this month introduce a new type of failures that no one thought was possible. I'm of a curious nature, so I really wonder what's coming.
jurassic|2 years ago
stephen_g|2 years ago
We saw this problem at the opposite end too - central banks around the world were trying for more than a decade to stimulate economies by dropping rates, many even to the point of taking them negative - and inflation remained stubbornly below the target…
So dropping rates hasn’t worked to stimulate, raising rates hasn’t worked to slow inflation… Why persist with the charade that adjusting rates is an effective policy?
coderintherye|2 years ago
philipwhiuk|2 years ago
api|2 years ago
This isn’t just cynicism. It’s based on how markets work. If lots of people think there’s a possibility of major doom then (1) they are preparing now and (2) it’s likely at least somewhat priced into the market already.
pshc|2 years ago
unknown|2 years ago
[deleted]
brucethemoose2|2 years ago
And TBH... market needs a little cooldown. I am no expert, but I dont like where P/E ratios and such are even after the last mini downturn.
TheAlchemist|2 years ago
Same here - there are bubble signs everywhere (SPACs, startup valuations, joke money called Dogecoin with market cap of 10B$ !), banks are sitting at >600B$ of unrealized losses - this is all public knowledge.
A 166 years old Swiss bank was bailed out this weekend.
So yeah, it definitely feels like a big crisis ahead. Gradually then suddenly !
mrzimmerman|2 years ago
Bailouts, by 2008 standards, would have been giving money to Credit Suisse so they could continue operating and avoid the fallout of their bad choices.
MrMan|2 years ago
[deleted]
Clubber|2 years ago
I think the housing market will correct (crash) and tech jobs will be harder to come by for junior folks and people who aren't that great at it. Not a great time to job hop. It won't be horrible like 2008 but it won't be great. Should be over by the 2024 election.
Quarrel|2 years ago
2008 when the crunch came it was super bad. Tech companies just froze their product plans. Stopped spending money. Lots of good startups failed through very little fault of their own, when they couldn't ride out the year or two before their customers would spend again.
In 2001 I founded a VC funded startup, and while it was a shit time to be raising money, it was a great time to be hiring. I think we could get to that position again this year. Right now it doesn't feel like good engineers are really struggling to find work though, while in 2001 that was definitely the case, and VCs are definitely getting more cautious.
In 2008 I had the sale of that business fall through as a major SV tech company's CFO said "Nope, we're just not spending any money on anything" after lots of work and terms being sorted out etc. People (CEOs & CFOs) were really scared about contagion and problems well beyond just "tech share are prices falling". I hope we don't get to that point again this time.
adnmcq999|2 years ago
yucky|2 years ago
01100011|2 years ago
China reopening trade has been softer than expected so far, but could still put pressure on commodities. Honestly the market is very confused right now. The bond market is saying recession(see rates dropping/curve steepening). The stock market is saying everything is more or less fine. Gold is up, but maybe because of dollar weakness and lack of faith in the fed to maintain a strong dollar.
The upper half of Americans really haven't felt enough pain yet. They still have plenty of money and are keeping demand high. I fully expect us to crash, but I don't think the bank crisis is more than a waypoint on a journey that started with the first rate hike(and, arguably, 2008).
Re: BTFP. It seems like QE-lite to me because banks were sitting on underwater assets that can now be used as collateral at full PAR value meaning the banks can reanimate these dead investments and put that money to work. I would love to be proven wrong but after going back and forth this is my current understanding.
Also, this is HN. Don't expect a high degree of accuracy on economic predictions here. Economics is hard. Even the fed and all of their PhDs can't get it right.
I think there are a lot of unknown risks out there now. Banks at least have the FDIC, the treasury and the fed(at least if you're big enough to present a systemic risk). There are non-bank lenders and other parties in our grossly complex financial system that are also under stress and could be the catalyst for major reversion soon.
adamhp|2 years ago
This 100%.
rossdavidh|2 years ago
The biggest difference is that this will hit everything that was (knowingly or not) built for a near-zero-interest-rate environment, not just financial companies but speculative tech startups that need lots of VC patience, etc. So probably not as focused on just financial companies.
arrosenberg|2 years ago
There will still be a fair amount of pain to go around, but it won't be across the board like 2008.
wslh|2 years ago
First, I think looking only at the economy is shortsighted: worldwide politics is broken: discussions that are not moving "civilization" forwards with the knowledge we have. For example, I see in the medical sector a lot of mala-praxis that is not connected with the state of art.
Now, returning to economics: I see more a shift than a big crisis. Politicians and regulator cannot put the dirt under the sofa and than needs a change.
I think power is a little bit more distributed and there could be someone with enough imagination somewhere.
mattbgates|2 years ago
In 2008, I just learned about stock market and investing right as the market crashed. I sent about $250 a month towards a variety of stocks every month. In 2023, I took out all my money from the stock market, having lost a bit, but still over $100k, and I bought a condo outright with a mountain view across the street from a hospital which has now become popular with travel nurses. Since it doesn't carry a mortgage, I'm able to completely profit from it and make a way better return than if I were to have left my money in the stock market or even put it in a CD again.
For now, it is what it is: https://www.cnn.com/2022/11/07/investing/stock-market-biden/...
Once there is more confidence / new leadership in our economy, I'll start putting my money back into the stock market. For now, I'm working on obtaining a third property for additional passive income though these interest rates are still insane. My latest quote was around 6% - 7%. Everyone and everything just seems to affect the stock market though it's still got a history of decent returns if you invest in the right places and even more slowly over time, as I had done.
claytongulick|2 years ago
RestlessMind|2 years ago
I lived through GFC and 2023 is nothing like that. Sure, some banks will go bust, especially the ones who have duration/liability mismatch. They are systematically unimportant (by definition, else they would have had stricter regulation).
Fed is also doing what common people would prefer to happen - letting equity holders go bust (aka rich people) and protecting deposits (esp 100% of the poor are helped because, again by definition, they have <250K in deposits and those are 100% guaranteed). While protecting deposits may also end up helping the rich, that should not be a big deal in practice because the rich are already savvy enough (like Thiel) to pull out their at-risk deposits and move those to SIBs. So by guaranteeing 100% deposits, Fed encourages rich to continue parking money at smaller regional banks which is again something a lot of common people want - avoiding concentration into 5 big banks.
JakeAl|2 years ago
dragonwriter|2 years ago
Not even slightly. Largely, because it wasn’t preceded by anything like the hollow post-2001 expansion, which, despite being an expansion (the period of aggregate growth between recessions), saw the upper income limit of the four lowest quintiles, and the low limit of the top 5%, all decline in real terms, with all of the gains concentrated in a very narrow segment at the top. It took the top of the bottom quintile until 2018 to bounce back to the 2001 level, for the second quintile that was 2016, for the third 2015, for the fourth quintile and the bottom end of the top 5%, 2013. For most of society, despite the gains at the top between recessions, the crisis was really 2001-2009, not just the “Great Recession” years of 2007-2009.
unyttigfjelltol|2 years ago
History doesn't repeat, but it sure does rhyme.
tiny_ta|2 years ago
[1] https://www.youtube.com/watch?v=EpMLAQbSYAw
[2] https://www.businesstoday.in/latest/world/story/dont-buy-tv-...
FrontierPsych|2 years ago
This is much worse, in my opinion.
At least the loans were backed by real property in 2008. Homes that will have value and in fact have came back way, way more valuable than the bottom of that crash.
What we have now is a crash in financial instruments themselves.
It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic. Simple supply and demand. More money created, less value money is worth.
History is littered with governments printing too much money, , and their entire civilization comes down.
Even Rome, mighty Rome, was brought down by printing up too much money. Other shit, too, but mainly printing too much money. They don't tell you this, but there ya go.
.
Will we pull out? Hope so. Just like in 2008 - we managed to pull out of it.
But 9 lives, folks. We're using them up.
claytongulick|2 years ago
In 2008 we had crazy financial instruments that were derivatives of bad home loans.
Now we have good loans, but a low interest rate on them so they aren't worth a lot compared to new loans at a higher rate.
The thing that seems to get missed in all the hand-wringing is that these new loans at higher rates are quite profitable.
The issue today seems to be the same as always, if there's a run on a bank, it'll be in trouble.
If not, banks should finally be able to make money in normal ways with the higher rates.
blablabla123|2 years ago
> It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic.
Indeed it's about supply and demand. The inflation is largely caused by a physical supply shortage.
The current banking problems are separate from that and because some (smaller) banks didn't have to comply with Basel III and all.
heldrida|2 years ago
TradingPlaces|2 years ago
So, banks were very vulnerable on the one hand due to over leverage, and they all owned a lot of an asset class that became unpriceable once people realized what had happened.
There is nothing like that now. The big issue is unrealized losses on 2020-1 vintage Treasury and government-mortgage securities because of rising rates. The Fed backstopped that by letting banks borrow against the full value of the bonds, not the depreciated value. If those bonds go to expiration, they are paid back in full, and the unrealized losses never become realized.
This is a tempest in a teapot caused by a few babies on Sand Hill Road who decided to destroy SVB, and then whine all weekend to the government to save them. They are libertarians until it hurts the bottom line.
stcroixx|2 years ago
dragonwriter|2 years ago
Nowhere close to the hit everyone was taking from income declines across all income groups except (well, at least the bottom 95%) in the 2001-2007 “expansion” leading into the 2007 Great Recession. (And, also, the much longer period of much higher interest rates, with much higher consumer debt load, leading into the 2007-2009 Great Recession.)
maxerickson|2 years ago
The bank failures going on right now are due to still large, but smaller banks courting customers that most banks don't deal with. Other banks still have to deal with the rise in interest rates impacting the value of bonds they hold as capital, but they aren't so uniformly exposed/overexposed as was the case in 2008.
cies|2 years ago
Familiar with the "dead internet theory"?
Also why do we like HN? Because here I can interact with some thought leaders: this would be exactly the place I'd point my bots at :)
Sorry for the paranoia spread. Take it with a grain of salt.
jacknews|2 years ago
If the Fed hadn't stepped up to insure the SVB deposits, we might be in a much worse situation, but as it is this feels like it could possibly maybe get out of control if a whole series of other bad things happen, but probably very unlikely.
There was one day in 2008 where it really felt like 'this is it, it really actually is all going to come crashing down, unless...'.
guestbest|2 years ago
But at least we have Uber and WFH.
rrrrrrrrrrrryan|2 years ago
I feel like higher interest rates are going to be here for a while, and a lot of tech companies are absolutely blowing through cash, about to be caught with their pants down. Anything that isn't profitable will die.
t312227|2 years ago
"Prof. Richard Wolff: The Economics of the US-China Cold War & Ukraine War"
* https://youtu.be/aok4FvtsSeg
wilsonnb3|2 years ago
Certainly not much point in asking on HN. If your question isn’t tech related then you aren’t going to get better answers here than you would on Reddit, Quora, Facebook, or your local pub.
uptownfunk|2 years ago
Consultant32452|2 years ago
Lazare|2 years ago
micromacrofoot|2 years ago
marcrosoft|2 years ago
jtode|2 years ago
Ever seen Lawrence Welk?
bjourne|2 years ago
dragonwriter|2 years ago
That’s true of most recessions, because by definition a recession is the period after a business cycle peak, and the peak of business cycles is when inflationary pressures are high and monetary policy tends to be tight to constrain inflation. It is definitely not a difference between today the 2007-2009 Great Recession where interest rates were at 5.25 for an extended period leading into it to fight inflation, a much tighter than they are today significantly tighter than today, and for significantly longer.
And we’ve had nothing like the expansion-with-no-gains-for-the-bottom-95% of 2001-2007 leading up to today, which was a major source of the magnitude of the 2007-2009 Great Recession.
simonblack|2 years ago
red-iron-pine|2 years ago
ksherlock|2 years ago
Yes, car loan delinquencies are up and mortgage delinquencies are trending up but mortgage delinquencies are still at some of the lowest levels (~1%) in the past 15 years.
lumost|2 years ago
Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.
unknown|2 years ago
[deleted]
sacnoradhq|2 years ago
dragonwriter|2 years ago
Energy component of CPI has been trending down (in absolute terms, so a negative inflation rate) since June.
ecf|2 years ago
mise_en_place|2 years ago
bradwood|2 years ago
rawgabbit|2 years ago
2008 was Wall Street convincing folks to hand over cash for magical beans called mortgage backed securities. When that bad trip caused companies like AIG to vomit cash, the US govt bailed them out because they weren’t the only ones who bought magical bean securities. The entire US financial system was facing collapse. You can Wall Street a fool. But they got bailed out; private investors got squat. Who is the fool? Private profits and public bailouts is modern US capitalism. In the meantime, some will jump up and down swearing bailing out student loan borrowers is murder.
2-718-281-828|2 years ago
AnimalMuppet|2 years ago
But I'm just a random non-banker on the internet, so take this with some salt...
lamontcg|2 years ago
It feels a bit more like 2006 since the real economy is still mostly flying along fine and most of the business page pronouncements from 'respected leaders' are that a soft landing is still in our future. There's a lot more unrest among average people though, back then you couldn't really find anyone in your normal life that thought it would crash.
It isn't the same though, the pandemic and the inflationary period that we hit were not anything like what happened in the build up to the housing bubble.
At the same time I think some people think we're back to the 1970s and inflation and stagflation are here to stay. That is unlikely to happen because this Fed speaks very highly of Volker and has signaled their willingness to crash the economy into a wall in order to tame inflation. This isn't the 1960s Fed that grew up during the 40s and 50s and wanted to prevent a Great Depression at all costs so was running the economy hot. There will be a recession and unemployment will rise, and the Fed has done everything other than come out and state explicitly that is what is going to happen.
Because of the increase in interest rates things are going to break. We just saw one example of that, but there's also going to be a corrosive effect on bad companies/investments as the zombie ones that required rolling over loans at low interest rates see their borrowing costs increase and that pushes them into being liquidated. The blowup that I'm expecting is in commercial real estate and CMBS. The top will likely come off the housing market, and that can't possibly go down that easy without a lot of economic pain.
At the same time I don't think anything has fundamentally changed. When unemployment starts to spike up significantly again and the system starts to lock up, then they'll drop rates back down to zero again. It'll also probably work, since with enough destruction of zombie businesses and a glut of unemployment there won't be an immediate rebound in employment or inflation.
Might not happen this year though. The Fed rate tightening cycle has still not quite ended yet, and its usually 6-12 months after the tightening cycle ends that it gets bad. We can still see a counter-trend rally into e.g. a double top in the markets. A lot of people believe that interest rates rising are what causes economy pain, not holding interest rates at a higher rate (they thing it is an "edge trigger" rather than a "level trigger") and those people are likely to try to throw a party after the Fed stops raising rates. Or this cycle might be different and the aggressive Fed actions might start to blow up more stuff quicker this time, I can't really tell you (if I could I could make a ton of money, but I have no firm idea of the near-term trajectory of the economy).
adnmcq999|2 years ago
Someone said they remember 2007-8 vividly and it felt precarious. I don’t, but from what Hollywood tells me, this person must be Michael Burry. Now we have a bunch of money that has been printed, which has done nothing to improve the economy and just caused a lot of wealth disparity and inflation. The Fed trying to get that under control is one of 2 concrete reasons for SVB. It has probably caused issues at many banks (they’re bag holding) with the only difference being their depositors are less reactive. What’s the solution? Print more money. Add to that geopolitical conflict between the US - which (let’s be real) doesn’t really stand for anything anymore other than the value of a dollar - and BRICS - which doesn’t stand for anything other than devaluation of the dollar. Putin once said the US economy is based on housing prices and he’s more or less right. It’s all tech and finance - which is either exploitative or can be done anywhere. BRICS has most of the resources and most of the production capability. A globalized world is more efficient and better, but debts need to be paid.
humanlity|2 years ago
yogthos|2 years ago
SVB, Credit Suisse, and Signature Bank aren't outliers. These are just the first banks to get hit by the crisis. It's almost certain that most other banks have been playing exactly the same kinds of games and betting on a low interest rate environment. Now that the inflation has risen to unacceptable levels, the Fed has no choice but to raise rates. This will translate into further chaos in the banking system.
If the rates don't go up then we'll see inflation keep climbing, and this will cool investment because it's practically impossible for companies to produce any meaningful returns in high inflation environment. A company right now has to show consistent 6% growth simply not to lose money right now.
Furthermore, 64% of Americans are now living paycheck to paycheck [1]. 37% of people are working two full time jobs [2]. And typical debt is around 100k [3].
So, over half the population has no savings and can barely makes ends meet while nearly 40% of people are already working as much as humanely possible. If cost of living keeps climbing a huge chunk of population will become insolvent, we'll see large numbers of people defaulting on their debt. Banks are the ones who are holding a lot of this debt, and as people start defaulting the banks will start failing.
Meanwhile, overall economic activity will cool with people cutting discretionary spending in order to afford necessities. This will make companies go out of business creating mass unemployment, and further feeding into the debt crisis.
Incidentally, we're right on schedule for a crash in the boom/bust capitalist cycle [4].
[1] https://www.cnbc.com/2022/03/08/as-prices-rise-64-percent-of...
[2] https://www.denver7.com/news/national/more-americans-report-...
[3] https://www.firstrepublic.com/insights-education/average-ame...
[4] https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp
finfrastrcuture|2 years ago
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personosrep|2 years ago
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