“It’s never bad…until markets say otherwise!”
Looks like it may be time to roll out our mantra that we used during 07. You remember the line. We used this line time and time again to describe the debt and leverage in the system in the leading up to the 08 crisis. Back then, we were worried about the”hear no evil, speak no evil, see no evil attitude by Bernanke when it came to the subprime lending policies as well as the securitization of that crap. But everything was just fine until markets said otherwise. Merrill, Wachovia, Lehman, Bear Stearns, Countrywide and whomever else, did not go out of business…the market put them out of business. Well, it looks like we need to take the line out of the closet again as the massive debt and leverage in the system has seemed to bubble up again. The question is whether this little spark will lead to a fire.
A few thoughts:
Blame all parties. The lenders are more insane than the borrowers as the lenders were able to watch in plain site as the borrowers couldn’t even pay off the early smaller amounts.
Greece is small. Puerto Rico is small. The rest is big. AND LEAVE NO DOUBT, there is a ton of debt and leverage in the system…more now than in 08.
We are amazingly the head honcho, top dog, big cheese. We are supposedly the adult in the room…the sane one. But we are the ones with over $18 trillion in debt and counting. We are the ones with a $500 billion yearly deficit with politicians actually taking victory laps over that number. We are the ones where our states are awash with over $4 trillion in unfunded liabilities. Yet we are looked at some sort of savior.
Our biggest issue is just like 08, no one really knows what is behind the door. Nobody knows how all the derivatives will do if the debt markets get in trouble. All we can do is sit back and realize that this is another moment in time where the masters of the universe had better realize that the assinine, assinten and asseleven easy money policies started by Bernanke and then picked up by the rest of the world may have created another easy money policy problem.
As far as the markets, they had already been deteriorating coming into this week. The bad got badder and the good sold off. Major indices broke initial support levels. Even the strong financials took a hit as yields tanked…taking away some of their margin. The other worry is the exposure they may have.
Much more to come in the days ahead!