Post Reply - Economic collapse

Hedge funds have been hit with the biggest margin calls since Covid shut down huge parts of the global economy in 2020, after Donald Trump’s tariffs triggered a powerful rout in global financial markets.

Wall Street banks have asked their hedge fund clients to pony-up more money as security for their loans because the value of their holdings had fallen as stock values dropped, according to three people familiar with the matter.

Several big banks issued the largest margin calls to their clients since the beginning of the pandemic in early 2020.  I am told these Margin Calls are "much larger than during the 2008 Great Financial Crisis."

The margin calls underscore the intense turbulence in global markets on Thursday and Friday as Trump’s tariffs announcement was followed by retaliatory duties by China, and other countries readied their own responses. Wall Street’s S&P 500 share index was set to post its worst week since 2020, while oil and riskier corporate bonds have sold off heavily.

"the real danger of the stock market dropping like it is, is that as stock values drop, the Banks will make Margin Calls to those borrowers telling them they need to pony-up more money to collateralize their loans.  Some who borrowed will be able to pay, others will not.   When they cannot pay, the Bank "calls-in the loan" and the Borrower is "in Default."

As more and more defaults happen, more stock values plunge, triggering more stock selling which only makes the whole thing worse.  It feeds on itself!

This immediately triggers the "Credit Default Swaps."   Banks went to Insurance companies and bought protection if the Borrowers Default.  That protection is Credit Default Swaps: If the loan defaults, the Insurance company pays the "Swap."

But as this stock slide continues, more and more loans will default and some Insurance companies may NOT be able to pay-off on those Credit Default Swaps.  The Insurance companies go under.

When they go under, all the OTHER banks that they insured must then book losses ON THE SAME DAY . . . . and the Banks go under.