The new financial crisis has started
The new financial crisis has started. I wholeheartedly wish that I am wrong- for the good of our society and well-being because people are not prepared for this at all. The last financial crisis of 2008, was a shock not only for society but also among the experienced financiers, as in September that year, even the Wall Street wolfs were asking themselves- will Goldman survive?
The 2008 crisis has taken a big hit in America and elsewhere. It was tragic- people losing houses, being treated as a useless part of the system that has failed. This is something that nobody should experience, having dignity and roof over your head and secure food and safety for family is the core value in the Maslow pyramid.
To recap: the crisis of 2008 was a lending crisis and structured products fiasco. People were encouraged to take loans, while the bankers had fun packaging them into various exotic structured instruments and the rating agencies gave them high five. While the banks and lending institutions encouraged people to take up loans by selling them their dream, they could not care less when those people were not able to pay back the loans due to increased interest rates or a change in foreign exchange rates.
The business of the banks is to take deposits, which they then invest in various securities, and to give out loans. The core lies in in the bank’s asset and liability management. Banks also lend each other money overnight. The interest rate they lend to each other is very important in the banking industry and it shows banks’ ability and willingness to lend. Something that is called ‘liquidity squeeze’ means that either the investors fear to lend their money due to lack of trust in the banking system, or that there are not enough funds in the banks’ reserves to lend the money, therefore, this pushes the interbank lending rates higher.
Something happened a few days ago- the U.S. Federal Reserve had to provide liquidity to the banking industry by ‘printing’ 54bn of USD to keep the overnight lending market calm. The last time this happened was in 2008.
Reuters reported: ‘The Fed was forced to make an emergency injection of more than $50 billion, its first since the financial crisis more than a decade ago, to prevent borrowing costs from spiraling even higher’. The Fed intended to bring the repo rate down to the target of 2%- 2.25%, as opposed to the 9%- 10% that it hit last week.
The U.S. has trillions worth of debt and the 2008 crisis was not sorted- the solution was to ‘print’- meaning, to issue more U.S. dollars; the debt was increasing by astounding volumes and the worthless securities were rolled over and over. There is a term that is very suitable here: ‘kicking the can down the road’.
What happened with the Fed providing liquidity a few days ago is not a good sign; the bankers might say that there is enough liquidity in their reserves, but nobody can trust them anymore after what happened ten years ago.
Do not think that the business of the banks is their business and when something goes wrong it will affect only them: bankers will sort themselves out, while those who will suffer will be the last ‘on the food chain’. Do you remember misplaced families in the U.S. when they lost their houses? Do you remember the Greek man who burned himself out of despair in Athens? Do you remember when the Greeks were queuing to take cash out of ATMs and had a limit of how much they can take out?
Safeguard yourself and your money. This time it can be much worse.
During the height of the 2008 crisis, a Whitepaper called ‘Bitcoin: a peer- to-peer electronic cash system’ was published. This system was created in order to avoid the existing banking system, in case it fails- as it was happening then. Ten years have passed, and the banking system has not sorted their problems. Let’s see what the future brings. Be prepared.
Thank you for reading,
AGNE Q
