The Looming Bank Collapse: Worse Than 2008? Mastery Newsletter September 14, 2020
They bailed out the banks in ’08.
Will they want to do it again?
This article from The Atlantic spells it out.
The Looming Bank Collapse
The Atlantic July August 2020 edition
“…Remember all those subsidiaries Enron created (many of them infamously named after Star Wars characters) to keep risky bets off the energy firm’s financial statements?
The big banks use similar structures, called “variable interest entities”—companies established largely to hold off-the-books positions.
Wells Fargo has more than $1 trillion of VIE assets, about which we currently know very little, because reporting requirements are opaque.
But one popular investment held in VIEs is securities backed by commercial mortgages, such as loans to shopping malls and office parks—two categories of borrowers experiencing severe strain as a result of the pandemic….
…
…It is a distasteful fact that the present situation is so dire in part because the banks fell right back into bad behavior after the last crash—taking too many risks, hiding debt in complex instruments and off-balance-sheet entities, and generally exploiting loopholes in laws intended to rein in their greed.
Sparing them for a second time this century will be that much harder…
…
A bank shouldn’t be able to keep $1 trillion worth of assets off its books.
If we do manage to make it through the next year without waking up to a collapse, we must find ways to prevent the big banks from going all in on bets they can’t afford to lose.
Their luck—and ours—will at some point run out.”
To Your Joy, Energy and Health,
Matti Anttila
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