OCT 17, 2019
Oh its Tuesday, (Friday) yes another bank just crapped out. Sixty (60) Billion this time? No its bigger, ninety (90) Billion this time.
What we got here is a serial implosion down the daisy chain. Whoops there goes another 100 Billion rat-hole!!! Hey, isn’t it only one a week? OK, some weeks its only 60 Billion!! Maybe its only ¾ of a Trillion annually, hey, its NOT QE, right? Well, maybe its a derivative, that went the wrong way. Or a Whale Trade against the oil price, which drained a Hedge Fund. Does the “Ping Pong Ball, Mouse Trap” detonation scenario bring anything to mind? Look it up on YouTube. Maybe the song “HIGH HOPES” done by Sinatra expresses it best.
It was an insurance company in 2008. In UK, it was Northern Rock Savings. With the FASB accounting board OK’g valuation at mark to fantasy, is this is any surprise that the banks and other institutions are using 300 to 1, or more leverage? With serial meltdowns up and down the daisy chain, it seems to me, that even if the FED moves to fill every hole it can find Some hole, somewhere, sometime will go unobserved, like the lurking subsurface fire after a lightning storm, that emerges in a conflagration that grows exponentially until it exceeds the capacity of the firefighters to bring it under control.
What can the “monetary authorities” do to alleviate a crisis, leading to unstoppable sequence of events. Short of an alien invasion on the scale of “Independence Day”, I don’t think there is anything that can be done that will neutralize a financial failure orders of magnitude larger than witnessed in 2007-2010. In September, the over night rate spiked from 1% over night, to 8% over night and it took a FED injection of 100 Billion to calm it down by the end of the month to the 2% level. Bottom line? Banks are not trusting each other to lend to, over night. Same symptom as 2008. Will the sequence be the same ? Likely not. Will it follow similar lines? It might. But the tune will be the same.
This is what it may look like if the serial meltdown of the financial daisy chain gets out of hand:
Another Canary in the Coal Mine
And yet again, Overnite Markets lock up
Guess what is happening here ? All going to MORE cash due to the fact that CASH markets are locking up on a regular basis