Tag Archives: Credit

Is China’s Bubble the Next Financial Crisis?


By Mark Whitehouse – The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report (pdf) from London’s Centre for Economic Policy Research.

Such credit-fueled growth can’t be sustained for long without causing major distortions and setting the country up for a fall.

The stimulus is already running into diminishing returns. Over the five years through 2013, government and private debt grew by about 3 yuan for each added yuan of economic activity, a level of credit intensity that the U.S. exceeded only in the years leading up to the 2008 crisis. more> http://tinyurl.com/k5985du

Here Comes the Internet of Money


Bloomberg – Money and payment systems, the underpinnings of all financial activity, are still traditional in one respect: They rely on central third parties — banks — to record and vouch for transactions.

Digital currencies dispense with this. They create a decentralized record — a “distributed ledger” — which allows buyers and sellers to interact directly. more> http://tinyurl.com/mx4unrg

Your Debt, Our Nation’s Headache


By Barry Ritholtz – Assets purchased with cheap and widely available credit become worth significantly less once the bubble bursts. But the debt remains.

All of that leverage used to purchase all of those assets — regardless of whether it’s subprime mortgages or dot-com stocks — sticks around.

Hence, a post-credit-crisis recovery is dominated not by the release of pent-up demand, but by massive corporate, household and government deleveraging. more> http://tinyurl.com/pryw54s

Related>

American families are stuck in a lost quarter century


By Matt Phillips – Auto sales are booming—but that’s largely because it’s so easy for consumers to get loans.

In a consumption-dominated economy like the US, consumers need to spend.

And if consumers don’t have the wages to spend, the only way to keep the consumption engine going is by extending debt to people with extremely shaky finances.

That’s a recipe for a future full of financial crises. more> http://tinyurl.com/mf2obd3

When credit is too much of a good thing


By Edward Hadas – What does credit do after it has finished the job it was designed for?

The supply of credit ought to stop at funding productive activity.

But the reality is different. Surplus credit fuels dangerous asset price inflation and funds profligate governments.

Credit too easily goes astray and there is no natural force to rein it in. Without firm regulatory guidance, credit seems to expand indefinitely, until the financial system explodes. That has been the pattern since the end of the Second World War. more> http://tinyurl.com/pyl26kh

Sometimes JPMorgan Gets Paid for Advising on Mergers


By Matt Levine – Investment banking, as a business, consists of doing tons of free work — tons of terrible, free work3 — for lots of clients in the hope of getting a few big merger or IPO mandates.

Some clients cheerfully milk this without ever paying off. For JPMorgan, Forest Labs and Comcast paid off. With windfalls! Or with, you know, the fees that JPMorgan earned by working for them for years and then advising on and financing their mergers, whatever.

There’s a lot of this sort of thing in the financial industry: You work or pay to obtain a bunch of out-of-the-money call options, and then you hope that some of them pay off.4 more> http://tinyurl.com/kmw3ru6

Why The Next Financial Crisis Could Be Worse Than 2008


By Mike Patton – Only two days before Christmas in 1913, deep into the night when many legislators had already left for the holidays, Congress passed the Federal Reserve Act, creating a “non-governmental” central bank – a bankers bank if you will – and charged it with the responsibility of controlling the nations monetary system.

Here’s the harsh reality. At some point, the Fed will have to start removing some of this excess capital from the system. This will be a difficult task. If they sell bonds too fast, it could cause bond prices to plummet. Moreover, any change in the Fed’s “easy money policy” would signal less liquidity for the stock market which would cause stock prices to collapse. more> http://tinyurl.com/n2tzx4w