Remember 2008? Well, the meltdown in ’08 actually started in ’07, but nobody noticed until it was a tidal wave. Well, the meltdown of ’22 has started in ’21, and nobody’s noticing. I am.
Two names will go down in infamy for bringing down Credit Suisse, the company that will start the dominos falling. Archegos and Greensill Capital. Credit Suisse bet on both these companies, that are now in bankruptcy. The losses are going to run into the billions. More important: when Credit Suisse goes down, they will likely take others with them. So why isn’t this the headline on the front page of every newspaper in town? Because we’re all distracted by other news: the trial of Derek Chauvin for the murder of George Floyd, and Matt Gaetz dragging a 17 year old around with him on his travels.
So back to the point: Archegos Capital was borrowing from multiple banks that somehow didn’t know about each other. Archegos Capital is a guy named Bill Hwang, banned from Hong Kong markets because of insider trading nine years ago. In the age of the internet, how is that possible the banks didn’t know about his debt load? That’s a good question. But the failure came from a bad review. Yep. When you own a bunch of stock (Viacom and Discovery, Inc.???) and somebody writes a bad review and you were using borrowed money to buy those stocks that just went down in value…gosh! It’s 1929 all over again!
Greensill capital was highly leveraged (remember credit default swaps?) and its insuror, Tokio Marine Management, got cold feet and wouldn’t renew their policy. That brought the entire house of cards down. This is ’08 for sure..and there will be more to come from companies you likely never heard of before they melt.
It seems like we’re back to ’07 and the financial fall is just beginning. When it begins to affect US banks, will the government bail them out this time? Uh, nope. First of all, the government just gave away all this year’s tax revenue to all of us. No money left in the till. Besides, the Biden administration ain’t the same as the end of the Bush/beginning of the Obama administration. No Secretary of the Treasury Hank Paulson, Fed Chair Ben Bernanke and head of the New York Fed branch Tim Geitner to guide this disaster. Instead, there’s the hangover from the Mnuchin days when all this started. The new Secretary of the Treasury (who is it ..quick..not a clue, right? It’s Janet Yellen, formerly head of the Fed..ok, then who’s running the Fed? Jerome Powell.) These two are the ones driving fiscal policy right now that will not have any money left over to bail out the banks. So I start to get that sinking feeling that comes when you’re in the stateroom and the Titanic hits that bump in the ocean.
When I wrote the Suffer the Children series, it was a very similar situation. Lots of bad things happened with a pandemic of parents killing children, covered up by the government. When the smoke cleared from all that, everyone figured out the US government was insolvent. No gold in Ft. Knox, no cash in the bank…a taste of things to come in the next year.