Massive risks to world economy as virus battle rages

AFP / Tolga AKMEN

The current crisis is likely to be more severe than the 2008 financial 

crisis crash because it affects the entire economy

The coronavirus outbreak and resulting lockdown of billions of people threatens the global economy to the point where economists are predicting the most violent recession in recent history, perhaps even eclipsing the Great Depression.

The crash will almost certainly be accompanied by a surge in unemployment, especially in countries with weaker worker rights, such as the United States.

Ahead of Thursday's emergency virtual G20 meeting, here are the key concerns.

- RECESSION OR DEPRESSION? -

"The G20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021," economists from the rating agency Moody's wrote on Wednesday.

Angel Gurria, head of the Organisation for Economic Co-operation and Development (OECD), told the BBC the world economy would suffer "for years".

AFP/File / Angela WEISS, Nicholas KAMM, Johannes EISELE, Frederic J. BROWN, Mandel NGAN, Eric BARADAT, MEGAN JELINGER, Saul LOEB, Andrew CABALLERO-REYNOLDS

The crash will almost certainly be accompanied by a surge in unemployment, especially in countries with weaker worker rights, such as the United States

The current crisis is likely to be more severe than the 2008 financial crisis crash because it affects the entire economy, with a collapse in supply due to the shuttering of factories and a similar crash in demand with billions of people in lockdown.

The transport and tourism sectors have been the first to feel the pain, although some such as pharmaceuticals, health equipment, sanitary products, food and online trade have seen a boost.

The collective GDP of the G20 countries is predicted to contract 0.5 percent, according to Moody's, with the US down 2.0 percent and the eurozone losing 2.2 percent.

China is expected to buck the trend and grow, but at a much-reduced rate of 3.3 percent, according to Moody's.

Most major banks believe the US has already fallen into recession, with Goldman Sachs forecasting a contraction of 3.8 percent this year and Deutsche Bank predicting the worst US slowdown since "at least World War II".

In Europe, where the PMI business activity studies for March were the worst ever recorded, the German economy minister warned of a contraction of "at least" 5.0 percent in 2020.

France's economy could shrink by 1.4 percent, according to Moody's.

Britain could fare worse, with KPMG predicting a fall of 2.6 percent, but that loss could double if the pandemic lasts until the end of the summer.

Capital Economics paints the darkest picture, warning of a possible 15 percent contraction in the second quarter, almost twice as bad as during the Great Depression of the 1930s.

- UNEMPLOYMENT -

Unemployment rates are expected to soar, particularly in countries where levels have recently been at historic lows, such as Britain and the US.

These economies have relied heavily on the boom in jobs in the "gig economy", such as taxi drivers and delivery workers, which offer little or no social protection.

Even employees on long contracts can be fired easily in the US, with economists predicting a dramatic increase in unemployment claims of between 1.0 and 3.0 million when data is released on Thursday, compared to 281,000 at present.

James Bullard, president of the St Louis Federal Reserve, has predicted unprecedented unemployment rates of 30 percent, while Europe can also expect to suffer.

"We think the unemployment rate in the eurozone will surge to about 12 percent by the end of June, giving up seven years' worth of gains in a matter of months," said David Oxley of the London-based Capital Economics, adding they expected some rebound by the end of the year.

- INFLATION -

The effect the crisis will have on prices is the source of great uncertainty, with deflationary pressure due to a collapse in demand on the one hand and potential inflationary pressure caused by devalued currencies and possible shortages on the other.

Inflation rates are low for the moment, and generally below central bank targets, particularly in Britain.

- DEBT -

Britain's current national debt of 90 percent of GDP is high, but reached "nearly 260 percent after the Second World War," Carl Emmerson of the Institute for Fiscal Studies (IFS), told AFP.

But leaders "really shouldn't be worried" by debt and deficits for the time being with financing rates at historical lows, Jonathan Portes, professor of economics at King's College London, told AFP.

They appear to be heeding the advice, with leaders from Washington to Berlin consigning fiscal orthodoxy to the dustbin and announcing budget-busting rescue plans for the economy.

Why The US Banking System Is Breaking Up

Economist Michael Hudson responds to the collapse of Silicon Valley Bank and Silvergate, and explains the similarities with the 2008 financial crash and the savings and loan crisis of the 1980s.

By Michael Hudson

March 13, 2023

Source: Geopolitical Economy Report

A run on American Union Bank in 1932

The California-based, cryptocurrency-focused Silvergate Bank collapsed on March 8. Two days later, Silicon Valley Bank went down as well, in the largest ever bank run. The latter was the second-biggest bank to fail in US history, and the most influential financial institution to crash since the 2008 crisis.

Economist Michael Hudson, co-host of the program Geopolitical Economy Hour, analyzes the disaster:

The breakup of banks that is now occurring in the United States is the inevitable result of the way in which the Obama administration bailed out the banks in 2008.

When real estate prices collapsed, the Federal Reserve flooded the financial system with 15 years of quantitative easing (QE) to re-inflate real estate prices – and with them, stock and bond prices.

What was inflated were asset prices, above all for the packaged mortgages that banks were holding, but also for stocks and bonds across the board. That is what bank credit does.

This made trillions of dollars for holders of financial assets – the One Percent and a bit more.

The economy polarized as stock prices recovered, the cost of home ownership soared (on low-interest mortgages), and the U.S. economy experienced the largest bond-market boom in history, as interest rates fell below 1%.

But in serving the financial sector, the Fed painted itself into a corner. What would happen when interest rates finally rose?

Rising interest rates cause bond prices to fall. And that is what has been happening under the Fed’s fight against “inflation,” by which it means rising wage levels.

Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors.

The result today is similar to the situation that savings and loan associations (S&Ls) found themselves in the 1980s, leading to their demise.

S&Ls had made long-term mortgages at affordable interest rates. But in the wake of the Volcker inflation, the overall level of interest rates rose.

S&Ls could not pay higher their depositors higher rates, because their revenue from their mortgages was fixed at lower rates. So depositors withdrew their money.

To obtain the money to pay these depositors, S&Ls had to sell their mortgages. But the face value of these debts was lower, as a result of higher rates. The S&Ls (and many banks) owed money to depositors short-term, but were locked into long-term assets at falling prices.

Of course, S&L mortgages were much longer-term than was the case for commercial banks. And presumably, banks can turn over assets for the Fed’s line of credit.

But just as QE was followed to bolster the banks, its unwinding must have the reverse effect. And if it has made a bad derivatives trade, it’s in trouble.


Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy.

Recognition of this problem led the Fed to avoid it for as long as it could. But when employment began to pick up and wages began to recover, the Fed could not resist fighting the usual class war against labor. And it has turned into a war against the banking system as well.

Silvergate was the first to go. It had sought to ride the cryptocurrency wave, by serving as a bank for various brand names.

After vast fraud by Sam Bankman-Fried (SBF) was exposed, there was a run on cryptocurrencies. Their managers paid by withdrawing the deposits they had at the banks – above all, Silvergate. It went under. And with Silvergate went many cryptocurrency deposits.

The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds?

What was crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?

Silvergate was a “special case,” given its specialized deposit base. Silicon Valley Bank also was a specialized case, lending to IT startups. First Republic Bank was specialized, too, lending to wealthy depositors in San Francisco and the northern California area.

All had seen the market price of their financial securities decline as Chairman Jerome Powell raised the Fed’s interest rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss.

Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks.

This is the quandary in which banks – and behind them, the Fed – find themselves.

The obvious question is why the Fed doesn’t simply bail them out. The problem is that the falling prices for long-term bank assets in the face of short-term deposit liabilities now looks like the new normal.

The Fed can lend banks for their current short-fall, but how can solvency be resolved without sharply reducing interest rates to restore the 15-year, abnormal Zero Interest-Rate Policy (ZIRP)?

Interest yields spiked on March 10. As more workers were being hired than was expected, Mr. Powell announced that the Fed might have to raise interest rates even higher than he had warned. Volatility increased.

And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives.

JP Morgan Chase and other New York banks have tens of trillions of dollars worth of derivatives – that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser.

When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.

There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders.

It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.

So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015.

So the chickens are coming hope to roost – with the “chickens” being, perhaps, the elephantine overhang of derivatives.

Silicon Valley Bank’s Collapse Shows Little Has Changed for Big Banks Since 2008

The spectacular collapse of Silicon Valley Bank was caused by corruption, financial recklessness, and poor decision-making. With its bailout echoing 2008’s eager bailouts for the rich, it begs the question: How much longer will Americans put up with this?

By Branko Marcetic

March 13, 2023

Source: Jacobin



Every now and then, a development perfectly embodies everything that’s wrong with an era. The collapse of Silicon Valley Bank (SVB) is one such development, the culmination of many years of financial recklessness, corporate entitlement, and corrupted political decision-making.

The sixteenth-largest US bank by assets up until a few days ago, SVB’s implosion is the second-worst bank failure in US history and the worst since the dominos of the global financial crisis began falling in 2008. Founded in 1983, the bank was the go-to financial institution for the glut of Silicon Valley start-ups that have spread like a rash in the era of cheap money, which was one of the factors in its downfall.

When times were good for venture capital, they were also good for SVB, which served nearly half of all US venture-backed companies. Times were particularly good this past decade or so, as the Federal Reserve ushered in an era of rock-bottom interest rates after the Great Recession. Sluggish growth and high unemployment were top of mind for the political and economic elite; low interest rates, the thinking went, would mean a lower cost of borrowing, leading to more investment and more job creation.

Things curdled in the wake of the coronavirus pandemic, when inflation overtook unemployment as the political and economic concern of the day. The Federal Reserve started rapidly hiking interest rates, by a massive 450 basis points over just the last year. This time, the thinking was that by constraining investment and raising expenses for both businesses and ordinary people, the Fed would put a lid on wage growth and consumer spending and rein in inflation (even though Fed chair Jerome Powell admitted this strategy wouldn’t affect food and fuel prices, two of the areas where average Americans are most feeling the effects of inflation).

This also had the secondary effect of turning off the tap on the ceaseless flow of venture capital that was keeping start-ups, even money-losing ones, above water, helping trigger a major downturn in tech, among other things. Lean times for the sector had a knock-on effect for SVB, which suddenly faced a crunch from its venture capital–backed depositors.

But the more perilous byproduct of the Fed’s rate hikes for SVB was the fact that it had heavily invested in government bonds — whose prices tend to drop when interest rates go up and vice versa — partly because it didn’t have much else to do with the money its customers were parking with it. According to Adam Tooze, SVB was taking a hit of at least $1 billion for every twenty-five basis points that the Fed raised rates, while not investing whatsoever in interest rate hedges, leaving it particularly exposed to Powell’s inflation-fighting gambit.

What finally doomed SVB was that the resulting losses prompted a panic among depositors. This was in no small part thanks to far-right billionaire Peter Thiel’s VC firm Founders Fund, which, after finding out its investors were having trouble transferring money to its SVB accounts, ordered them to send them to other banks and had withdrawn all of its cash by the time the bank started melting down late last week. Around the same time, a newsletter popular in the VC world warned about SVB’s financial issues, while one depositor described the fear among a group chat of more than two hundred tech executives, who soon rushed to pull their money out. Behavior like this led to a classic bank run, where everyone with funds in the bank scrambles to withdraw their money at the same time, collapsing it.

All of this was enabled by the usual combination of corporate power and corruption in Washington, DC. It was Donald Trump and a GOP Congress’s 2018 rollback of the Dodd-Frank financial reform law that, at the personal request of SVB’s president three years earlier, opened the door to this kind of meltdown, by exempting banks the size of SVB from liquidity mandates and more frequent stress tests from regulators. Not that it was the SVB simply asking nicely: the bank also spent more than half a million dollars on lobbying in those three years, employing as lobbyists former staffers for then House majority leader (and now speaker) Kevin McCarthy, who enthusiastically supported the rollback.

Of course, it wasn’t just Republicans to blame. Seventeen Democrats backed the legislation, and critical to shaking off progressive criticisms of the bill was Rep. Barney Frank — the “Frank” in Dodd-Frank — who insisted it wouldn’t make a future financial crisis more likely and whose advice was cited by Wall Street–captured Democrats on the Senate floor and elsewhere as they prepared to gut the hard-fought financial regulations.

Worse than the way Frank’s advice has aged is the fact that at the time, he happened to sit on the board of Signature Bank. That institution didn’t just benefit from Frank giving a thumbs up to Congress weakening his own signature legislative achievement, but has just now been closed down by regulators after becoming the third-largest bank failure in US history at the hands of its own bank run, to prevent a wider contagion of the financial system — the exact thing Frank insisted wouldn’t happen.

Meanwhile, the individualist supermen of Silicon Valley and Wall Street have transformed overnight into willing wards of the state, demanding the government come to the rescue of wealthy investors who stand to lose. (The federal government only insures deposits up to $250,000, which means more than 85 percent of SVB’s deposits were uninsured.) Larry Summers, fresh off railing against “unreasonably generous student loan relief,” is now telling us it’s “not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts,’” as he demanded that all uninsured deposits “be fully backed by Monday morning.”

Unsurprisingly, Summers and his ilk won out. Despite pledging not to bail out SVB and Signature, the Treasury, Fed, and the Federal Deposit Insurance Corporation invoked a “systemic risk exception” to announce that all depositors, even those above the $250,000 threshold, will “have access to all of their money” starting today, and that it would start an emergency lending program for banks to ensure as much.

Some are drawing a distinction here from the infamous and hated 2008 bailouts, because this time, the banks aren’t being rescued and taxpayers aren’t footing the bill (the funds being used to cover depositors are made up of fees that were levied on banks). But at the end of the day, the government is stepping in to ensure wealthy investors and executives don’t lose a cent from this debacle, despite the fact that they knew full well their deposits weren’t insured. Even the Wall Street Journal calls this a “de facto bailout.”

There is the obvious, wealth-inflected unfairness inherent to all this. Once again, the big guys are quickly doused with a firehose of money when they get into trouble after failing to carry out basic due diligence. Meanwhile, working people are lectured about personal responsibility, and are forced to scratch and claw to be freed of crushing debt, for basic economic protections in the middle of an economic catastrophe, and to get one-time stimulus checks that barely cover a month’s rent in many cities.

There’s also the question of what kind of future irresponsibility this will encourage. After all, investors just saw (again) firsthand that the federal government will step in to rescue them even if their deposits are uninsured — no matter how irresponsible the financial institution they were parking their money in happened to be, as long as there’s a whiff of potential wider financial instability around the corner. We might also ask what other economic mayhem might be triggered by the Fed’s determination to fight inflation through cranking up interest rates; SVB is just one of many possible entities that could spiral into instability as the central bank barrels ahead with a plan that experts warn will trigger recession, as the cryptocurrency collapse already showed us.

Behind it all, there’s a question: How much longer people will tolerate a system like this? One where vast amounts of wealth are misdirected to unproductive ends in the middle of world historical crises, then frittered away in speculative recklessness that nearly brings the entire structure down, only for those with the money to parachute to safety while everyone else remains condemned to austerity. The original bank bailouts set off a cascade of popular anger that’s irrevocably shaped the landscape of twenty-first-century politics, from Occupy Wall Street and the Bernie Sanders campaigns to the Tea Party movement and the Trump presidency. What will it look like if they keep on happening?

Wall Street bonuses soar by 20%, nearly 5 times the increase in US average weekly earnings

Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.

By

 Sarah Anderson

 -

March 28, 2022

SOURCEInequality.org

While inflation has wiped away wage gains for most U.S. workers, just-released data reveal that Wall Street employees are enjoying their biggest bonus bonanza since the 2008 crash.

Institute for Policy Studies analysis of new New York State Comptroller bonus data:

The Inflation Divide

• The average annual bonus for New York City-based securities industry employees rose 20 percent to $257,500 in 2021, far above the 7 percent annual inflation rate. By contrast, typical American workers lost earnings power in 2021. Average weekly earnings for all U.S. private sector employees rose by only 2 percent between January 2021 and January 2022, according to the Bureau of Labor Statistics.

Unlike hourly wage data, average weekly earnings reflect the fact that many Americans had to cut back on work hours last year, largely due to Covid-related illness, lack of child care, and other family care pressures. The average weekly hours worked by U.S. private sector employees dropped from 35.0 to 34.5 between 2020 and 2021.

Return to Pre-Financial Crash Bonus Levels

The average Wall Street bonus of $257,500 in 2021 was far higher than any year since the 2008 financial crash. The second-highest was the 2017 average bonus of $209,046, adjusted for inflation. These bonuses come on top of base salaries, which averaged $254,000 in 2020.

Wall Street pay v. the minimum wage

• Since 1985, the average Wall Street bonus has increased 1,743 percent, from $13,970 to $257,500 in 2021 (not adjusted for inflation). If the minimum wage had increased at that rate, it would be worth $61.75 today, instead of $7.25.
• The total bonus pool for 180,000 New York City-based Wall Street employees in 2021 was $45 billion — enough to pay for more than 1 million jobs paying $15 per hour for a year.

Wall Street bonuses and gender and racial inequality

The rapid increase in Wall Street bonuses over the past several decades has contributed to gender and racial inequality, since workers at the low end of the wage scale are disproportionately people of color and women, while the lucrative financial industry is overwhelmingly white and male, particularly at the upper echelons.

• The share of the five largest U.S. investment banks’ senior executives and top managers who are male: JPMorgan Chase: 74%, Goldman Sachs: 75%, Bank of America: 64%, Morgan Stanley: 74%, and Citigroup: 64%.
• In 2021, the leadership of the largest Wall Street banks became slightly more diverse when Jane Fraser, a white woman, became the first female leader of a top-tier U.S. investment bank. The CEOs of the other four banks in that tier are all white males.

Nationwide, men make up 62 percent of all securities industry employees but just a tiny fraction of workers who provide care services that are in high demand but continue to be very low paid. Men make up just 5.4 percent of childcare workers, an occupation that pays $26,790 per year, on average. Men make up just 13 percent of home health aides, who average $27,080 per year.

• At the five largest U.S. investment banks, the share of executives and top managers who are Black: JPMorgan Chase: 5%, Goldman Sachs: 3%, Bank of America: 5%, Morgan Stanley: 3%, and Citigroup: 4%.
• Nationally, Black workers hold just 7.2 percent of lucrative securities industry jobs but 27.4 percent of home care and 16.3 percent of child care jobs.

These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic. While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.

Actions to crack down on runaway Wall Street pay are long overdue. Since 2010, the year the Dodd-Frank financial reform became law, regulators have failed to implement that law’s Wall Street pay restrictions. Meanwhile, Congress has failed to raise the minimum wage.

“These two failures speak volumes about who has influence in Washington — and who does not,” Anderson said.

Powerful Wall Street lobbyists have succeeded in blocking Section 956 of the Dodd-Frank legislation, which prohibits large financial institutions from awarding pay packages that encourage “inappropriate risks.” Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet — despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.

In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress. Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street

Sarah Anderson  

IPS Global Economy Project Director Sarah Anderson’s current work includes research, writing, and networking on issues related to the impact of international trade, finance, and investment policies on inequality, sustainability, and human rights. Sarah is also a well-known expert on executive compensation, as the lead author of 16 annual “Executive Excess” reports that have received extensive media coverage. In 2009, she served on an advisory committee to the Obama administration on bilateral investment treaties. In 2000, she served on the staff of the bipartisan International Financial Institutions Advisory Commission (“Meltzer Commission”), commissioned by the U.S. Congress to evaluate the World Bank and IMF. Sarah is also a board member of Jubilee USA Network and a co-author of the books Field Guide to the Global Economy (New Press, 2nd edition, 2005) and Alternatives to Economic Globalization (Berrett-Koehler, 2nd edition, 2004). Prior to coming to IPS in 1992, Sarah was a consultant to the U.S. Agency for International Development (1989-1992) and an editor for the Deutsche Presse-Agentur (1988). She holds a Masters in International Affairs from The American University and a BA in Journalism from Northwestern University.

‘Jaw-dropping’: Wall Street bonuses have soared 1,743% since 1985

A new analysis finds that if the federal minimum wage had increased at the same rate, it would currently be $61.75 an hour.

By

 Jake Johnson

 -

March 24, 2022

SOURCECommon Dreams

A new analysis out Wednesday estimates that if the federal minimum wage had grown at the same rate as Wall Street bonuses over the past three and a half decades, it would currently be $61.75 an hour instead of $7.25.

According to fresh data from the New York State Comptroller, the average bonus dished out to Wall Street employees jumped 20% to a record $257,500 in 2021 as big banks reported huge profits despite widespread havoc caused by the coronavirus pandemic. Last year’s average Wall Street bonus was the highest since 2006, prior to the Great Recession.

The comptroller’s office points out that while the securities industry comprises just 5% of private-sector employment in New York City, it makes up one-fifth of total private-sector wages.

Taking the new figures into account, Sarah Anderson of the Institute for Policy Studies notes in a report that the average Wall Street bonus has soared by 1,743% since 1985.

“By contrast, typical American workers lost earnings power in 2021,” Anderson writes, noting that high inflation has eroded the modest wage gains seen by ordinary people. “Average weekly earnings for all U.S. private-sector employees rose by only 2% between January 2021 and January 2022, according to the Bureau of Labor Statistics.”

“These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic,” Anderson adds. “While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.”

Anderson argues that Wall Street bonuses have been soaring in recent years partly because Section 956 of the Dodd-Frank Act—a financial reform measure enacted in the wake of the 2008 crash—has never been implemented.

“Powerful Wall Street lobbyists have succeeded in blocking Section 956… which prohibits large financial institutions from awarding pay packages that encourage ‘inappropriate risks,'” Anderson writes. “Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet—despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.”

“In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress,” she continues. “Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.”

CRIMINAL CAPITALI$M
Credit Suisse to pay $495 mn in US to settle securities case

Issued on: 17/10/2022

Subprime mortages were at the heart of the 2008 financial crisis

Zurich (AFP) – Credit Suisse said Monday it would pay $495 million to settle a row over mortgage-backed securities dating back to the 2008 financial crisis.

Switzerland's second-biggest bank said it had agreed with New Jersey authorities to make the "one-time payment... to fully resolve claims" for compensation, and said it had already provisioned the amount.

In the claim filed in 2013, Credit Suisse was criticised for not having provided sufficient information on the risks relating to $10 billion of mortgage-backed securities.

Subprime mortgages, credit granted to borrowers often with poor credit histories or insufficient income, were packaged into financial products and sold to investors.

But as borrowers defaulted on many of those mortgages, investors had no way of telling what portion of the loans in the derivatives were bad.

Those products were at the heart of the 2008 financial crisis, which sparked a global recession and brought the international financial system to the brink of collapse.

Credit Suisse said the final settlement with the New Jersey Attorney General allowed it "to resolve the only remaining RMBS (residential mortgage-backed securities) matter involving claims by a regulator and the largest of its remaining exposures on its legacy RMBS docket".

Shares rose after the statement on the SMI, the flagship index of the Swiss Stock Exchange.

Speculation has been growing ahead of an update scheduled by the new chief executive for later this month.

According to the Financial Times, the bank is considering not only disposals in its investment bank but also the sale of some of its domestic activities in Switzerland.
Financial crisis fines

In January 2017, US authorities forced Credit Suisse to pay out $5.28 billion over its role in the subprime crisis -- three years after it was fined $2.6 billion for helping Americans avoid taxes.

Last year, Credit Suisse also paid $600 million to financial guarantee insurer MIBA to settle other long-running litigation connected to the US subprime mortgage crisis.

The bank said last January it was increasing the provisions set aside for the MBIA case and others involving mortgage backed securities by $850 million.

Some of the world's biggest banks have also faced legal claims after the 2008 financial crash.

German banking giant Deutsche Bank agreed in December 2016 to pay $7.2 billion to settle a case with the US Department of Justice.

And British banking giant Barclays reached a deal in 2018 to pay a US fine of $2 billion over a fraud case involving subprime mortgage derivatives.

The Bank of America meanwhile agreed to a $17 billion deal with US authorities in 2014 to settle claims it sold risky mortgage securities as safe investments ahead of the 2008 financial crisis.

© 2022 AFP

Black Gold

Happy New Year. 2008 the year of the great recession, it's only a matter of time. Oil and Gold have hit their 1980 values.

Oil hits record US$100 a barrel on supply concerns

Gold price breaks 28-year record to hit new peak

And if you have forgotten the eighties began with an oil boom but saw global recession, the crash of the oil and gas markets and the largest crash on wall street, 1987, since 1929.

If this trend continues, stagflation could rear its ugly head, again

Oh yes and Reagan was President of the Free World. And like Reagan the Bush regime has spent America into recession. Analysts: Bush was big spender in early years in office

America now is officially for sale and the only folks able to bail out Wall Street are the Sheiks of Arabia and the Chinese.



SEE:

U.S. Economy Entering Twilight Zone

Purdy Crawford Rescues the Market

Sub Prime Exploitation

Canadian Banks and The Great Depression

Wall Street Deja Vu

Housing Crash the New S&L Crisis

US Housing Market Crash

Tags
asset-backed commercial paper ,, gold
homes, mortgages, housing, bubble, US, economy, oil prices, sub-prime mortgage, Wall Street, crash, recession,

US Home Prices Now Posting Biggest Monthly Drops Since 2009

(Bloomberg) -- Home prices in the US have taken a turn and are now posting the biggest monthly declines since 2009.

Median home prices fell 0.98% in August from a month earlier, following a 1.05% drop in July, Black Knight Inc. said in a report Monday. The two periods mark the largest monthly declines since January 2009.

“Together they represent two straight months of significant pullbacks after more than two years of record-breaking growth,” said Ben Graboske, Black Knight Data and Analytics president.

The housing market is losing steam fast with skyrocketing mortgage rates driving affordability to the lowest level since the 1980s. The Federal Reserve has sought to curb inflation, which has thrown cold water on the US real estate boom.

While prices are falling on a month-over-month basis, they’re still significantly higher than a year earlier when the buying frenzy was going strong. Values were up 12.1% from a year earlier in August.

The sharpest correction in August was in San Jose, California, down 13% from its 2022 peak, followed by San Francisco at almost 11% and Seattle at 9.9%, the company said.

IT BEGAN EARLIER THAN 2009

LA REVUE GAUCHE - Left Comment: Search results for HOME CRASH 2007 

LA REVUE GAUCHE - Left Comment: Search results for CRASH 2008 

LA REVUE GAUCHE - Left Comment: Search results for HOUSING CRASH 

LA REVUE GAUCHE - Left Comment: Super Bubble Burst 

LA REVUE GAUCHE - Left Comment: Forward to the Past 

U$A

Zero-down mortgages are back sparking fears of being the new subprime loans which caused the 2008 market crash

Story by Mike Bedigan •  THE INDEPENDENT UK

A new “zero-down” mortgage program has sparked concern of fueling another housing bubble given its similarities to the disastrous subprime loans that contributed to the 2008 housing market crash.

The programs, announced two weeks ago and offered by United Wholesale Mortgage, allow qualified borrowers to receive up to $15,000 in down payment assistance.

The interest-free loan program does not require monthly payments and aims to “help more borrowers become homeowners without an upfront down payment,” the company said.

However, experts have warned that the programs – which, according to company, have already proved incredibly popular – could backfire on homeowners should the US housing market begin to cool, and prices begin to drop.

To qualify for the loans, borrowers must be at or below 80 percent of the Area Median Income for the property they are buying, or one borrower must be a first-time homebuyer.

The assistance loan, given as a second lien, offers flexibility in repayment and must be paid in full by the end of the loan term or when the first lien loan is paid off - for many homeowners, that would be at the end of 30 years of paying their mortgage.

“UWM’s 0% Down Purchase program is going to change the game this purchase season,” UWM chief executive Mat Ishbia said.

“No other wholesale lender in the country is offering this, meaning independent mortgage brokers now have a significant advantage with consumers and real estate agents. Thousands of borrowers are sitting on the sidelines because they don’t have a downpayment – this program removes that barrier.”

However, one of the risks of prospective homeowners paying no down payment, is that they will begin with no home equity – i.e the current market value of a home, minus any liens such as a mortgage.

Should house prices begin to drop, borrowers could find themselves owing more than the home is worth on repayments. This could lead to a failure to comply with the mortgage terms, known as being in “default.”

Further problems could arise if the homeowner needs to sell the property quickly, but are unable to repay the second mortgage.

Patricia McCoy, a professor at Boston College Law School and former mortgage regulator, told CNN that scenario is “exactly what happened” during the subprime crisis, when millions of homeowners were unable to make payments and went into default.

The housing bubble that popped around 2006 was fueled in part by a boom on the amount of subprime mortgages, and adjustable rate mortgages being offered.

A subprime mortgage is generally a loan that is meant to be offered to prospective borrowers with impaired credit records. The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers.



A new “zero-down” mortgage purchase program has sparked concern within the industry, due to similarities with the disastrous subprime loans that contributed to the 2008 housing market crash (AP)© Provided by The Independent

Jonathan Adams, an assistant professor at Saint Joseph’s University teaching real estate finance, said the zero-down loan program has “all the features that made subprime bad,” noting that those who qualified for the program are likely to suffer when home prices are falling.

“One of the lessons of the subprime crisis was that you are not doing any favors to borrowers by making it too easy to borrow,” Adams told CNN.

The company rejected the concerns over potential fallout from its programs, saying that borrowers must still go through strict underwriting guidelines.

“People who make these claims are uneducated about the current state of the industry,” Alex Elezaj, the company’s chief strategy officer, told CNN. “In today’s environment, UWM is responsible for underwriting the loan, which gives us confidence that these are high quality loans.

“This is a huge positive. It’s helping consumers and is a great win across the board.

“Think about all the people who are renting and would love to buy a house, but they face this roadblock of coming up with $10,000 or $15,000 for a down payment. This eliminates that.”

Did Big Bang Create Crash???

Since the economists and advocates for the free market seem to be at a loss as to why the current international financial system collapsed, perhaps they should look at the coincidence between the start of the Big Bang experiment in Europe and the fact that perhaps this is a quantum economic meltdown, the result of the firing of the Hadron Collider in France.

After all the marketplace that manipulates capital in the money markets and theshadow economy; hedge funds, dirivitives, etc. is the result of the use of computer technology and in particular the access that the internet allows computers. The internet which was created by CERN in order to facilitate the international scientific coordination of the Hadron Collider project.

And remember those folks who worried that the start up of the collider would create a black hole? They were laughed at. Yet within days of the collider start up and failure, the international financial market blew up in a big bang not seen since the Great Depression.

Coincidence? In a quantum universe I think not. After all what is a bigger black hole than the collapse of international capitalism?


Cern CIO talks about the credit crunch and black holes

CERN's Large Hadron Collider, the biggest and most complex machine ever built, will study the smallest building blocks of matter, sub-atomic
particles.
CERN scientists launched the experiment on September 10, firing
beams of proton particles around the 27-km (17-mile) tunnel outside Geneva 100
meters (330 feet) underground.
But nine days later they had to shut it down
because of a helium leak caused by a faulty electrical connection between two of
the accelerator's huge magnets
When it works again, the collider will recreate conditions just after the
Big Bang believed by most cosmologists to be at the origin of our expanding
universe 13.7 billion years ago.
It will send beams of sub-atomic particles
around the tunnel to smash into each other at close to the speed of
light.
These collisions will explode in a burst of intensely hot energy and
of new and previously unseen particles.
CERN, which invented the Worldwide
Web nearly 20 years ago, has set up a high-power computer network linking 7,000
scientists in 33 countries to crunch the data flow, enough to create a tower of
CDs more than twice as high as Mount Everest.

CERN Unveils Global Grid For Particle Physics Research
The network can pull in the IT power of more than 140 computer centers in 33 countries to
crunch an expected 15 million GB of data every year.
By Antone Gonsalves
InformationWeek October 3, 2008 04:57 PM

CERN, the world's largest particle physics lab and creator of the World Wide Web, on Friday launched a
global computer network that links the IT power of data centers in 33 countries
to provide the data-crunching muscle needed in conducting experiments on the
nature of matter.

The Cern nuclear-physics laboratory in Geneva, Switzerland, is helping
the technology industry refine the multicore processors and fat gigabit networks
destined for the datacentres of tomorrow through the Openlab
initiative.

Through the project, the IT department at the lab behind the
Large Hadron Collider pushes cutting-edge kit to breaking point to perfect it
for its own use, and the consumer and business markets.
The lab has
partnerships with companies including HP ProCurve, Intel and Oracle, who provide
the backbone of its IT infrastructure, its 8,000-server computer centre and its
links to the Worldwide LHC Computing Grid, consisting of more than 100,000
processors spread over 33 countries.
Cern's chief information officer,
Wolfgang von Rueden, told ZDNet.co.uk sister site silicon.com: "We wait for
industry to develop the technology, then we take it and see how far we can push
it and feed back to them."


CERN Orchestrates Thousands of Business Services with ActiveVOS
Visual Orchestration System Integrates Diverse Systems
for More Effective Mobile Workforce
Last update: 9:00 a.m. EDT Oct. 21,
2008
WALTHAM, Mass., Oct 21, 2008 (BUSINESS WIRE) -- Active Endpoints, Inc. ( http://www.activevos.com/), the inventor of visual orchestration
systems (VOS), today announced that CERN, the European Organization for Nuclear
Research, of Geneva, Switzerland, has successfully deployed ActiveVOS(TM) to
orchestrate and manage its core technical and administrative business services.
As one of the world's largest and most respected centers for scientific
research, CERN is the nucleus of an extensive community that includes over 2,500
on-site staff, and nearly 9,000 visiting scientists. These scientists
principally work at their universities and laboratories in over 80 countries
around the world. Using ActiveVOS, CERN has now integrated and automated all its
core processes as well as integrated those processes with the many external
systems required by this dispersed workforce.
"Automating all of the
essential business processes such as arranging travel, ordering materials,
authorizing access to controlled areas for our 11,500 users from all over the
world was a complex challenge," said Derek Mathieson, section leader, CERN.
"Using ActiveVOS's capabilities including process versioning, retry policies,
error and exception handling, integrated debugging and support for open
standards, we now have completed over 1,200,000 process instances. We add, on
average, approximately 12,000 new BPEL processes every day. ActiveVOS has also
automated internal administrative processes, such as annual performance reviews
and safety alarm activation. We are now able to support our large community of
scientists and our staff, ensuring they spend their time on research and not
administrative tasks."

SEE:
No Austrians In Foxholes
CRASH
Black Gold
The Return Of Hawley—Smoot
Canadian Banks and The Great Depression
Bank Run
U.S. Economy Entering Twilight Zone


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