Post Reply - Economic collapse

While today's troubles are not caused by MORTGAGE-BACKED Securities, as was the case in the year 2008, it now appears it will happen because of loans to Commercial Entities!   

They borrowed money and used Stocks as collateral.

The stocks didn't go up, they have now gone DOWN.

The loans they took are no longer properly collateralized, so the banks call them and say, we need you to put up more collateral or cash.

The Hedge Funds (maybe) can't do it.   They default - and go under.

The Banks took out a sort of Insurance against this, called Credit Default Swaps.   The Banks go to the Insurance Company and demand payment.   Maybe the Insurance company CAN'T pay all the claims - they default and go under.

Now, all the other Banks that those Insurance Companies had Swaps with, have to book losses because the Swaps are no good.  They book all the losses - on the same day - and THEY GO UNDER.

The whole system comes crashing down ---- again.  

No "Bail-Outs" --  This time, "BAIL-IN"

Only THIS TIME, the laws have changed.  THIS TIME, the banks don't get bailed-OUT by government, they get BAILED-IN by . . .  you and me.  Depositors.

When we opened our Checking, Savings, Certificate of Deposit, I.R.A. or 401-K accounts, the terms in the Contract (and the new laws) allow the Bank to TAKE OUR MONEY and swap Stock Certificates in that Bank, for the value of money they took from the Depositor!   YOU AND ME "Bail-IN" the Bank.

While the terms and conditions vary from Bank to Bank, the common theme is that a Depositor CANNOT SELL THOSE BANK SHARES for a year or more!

Sooooooo . . . . what do you and me do for money until then?  

Oh, and once that year or so arrives, who is going to want to buy those Stocks in a bank that went bad?   Probably nobody!

So you and I are left with almost worthless "Stocks" in a Bank that took our money.

Circus ringmaster Trump’s Tariff Tizzy (TTT), christened by himself as “Liberation Day”, is being largely interpreted around the world – Global North and Global South alike – as Slaughterhouse Day.

This de facto uncontrolled economic demolition gambit starts with the warped fantasy that launching a customs war on China is a bright idea. As bright as collecting a few trillion extra dollars in tariffs assuming the rest of the planet will be somewhat “encouraged” to sell to the Hegemon, while pretending that these tariffs will lead to the re-industrialization of the U.S.

The tragicomic mask of a self-appointed circus ringmaster of turbo-capitalism may be as pathetic as the European chihuahua rage boosting their “revenge” via Rearmament – with funds that they plan to steal from the savings accounts of unsuspecting citizens.

The indispensable Michael Hudson has configured the key problem. Allow me a little tweak: “Sanctions and threats are the only thing that the United States has left. It no longer can offer other countries a win-win situation, and Trump has said that America has to be the net gainer in any international deal it’s made, whether it’s a financial deal or a trade deal. And if America is saying, any deal we make, you lose, I win”, that Mafia extortion gambit does not exactly reflect the Art of the Deal.

Prof. Hudson neatly describes Trump’s negotiation tactics: “When you don’t have very much to offer economically, all you can do is offer not to hurt other countries, not to sanction them, not to do something that will be against their interest.” Now, with TTT, Trump is actually “offering” to hurt them all. And they will certainly invest in all sorts of counter-tactics to “get away” from that “strategy” of American “diplomacy”.

A rentier FIRE Empire (financialization, insurance, real estate, as masterfully analyzed by Michael Hudson), which offshored its manufacturing industries and was gobbled up by a pile of overleveraged hedge funds, Wall Street derivatives and Silicon Valley totalitarian surveillance in the end decides to strike…itself.

Poetic justice applies. Burning Down the House – from inside the house. As for the emerging, sovereign Global Majority, rejoice: and step on the high-speed rail de-dollarization train.