The Leverage Problem

[Ambivalent1]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

Obviously.

Obviously not too obvious. There are no Lefty's (including G) who will ever take the time to actually research the subject.

 

[Toddsterpatriot]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.

The Treasury doesn't have a "lending window".

 

[Ambivalent1]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.

The Treasury doesn't have a "lending window".

Of course it does. It is where the Bonds are printed.

 

[kyzr]

Trump is expanding the economy, that grew at 3.2% in 2018,

where did you come up with this bullshit number?

I averaged the 4 quarterly growth rates.

 

[g5000]

Regulators can minimize this effect AHEAD OF TIME, by stopping assholes from overleveraging themselves.

Banks are a lot less leveraged than they were in 2007.

Incorrect.

Here is some more information for you to ignore: The biggest red flag for the next recession? Corporate debt-to-cash ratios, top economist says

The cash-to-debt ratio of speculative-grade borrowers reached a record low of 12 percent in 2017, below the 14 percent level in 2008

 

[B. Kidd]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.

The Treasury doesn't have a "lending window".

Is it starting to make sense to you now?

 

[g5000]

Trump is expanding the economy, that grew at 3.2% in 2018,

where did you come up with this bullshit number?

I averaged the 4 quarterly growth rates.

The annual GDP growth for last year was 3.0 percent.

 

[Harpy Eagle]

Trump is expanding the economy, that grew at 3.2% in 2018,

where did you come up with this bullshit number?

I averaged the 4 quarterly growth rates.

I assumed you had done that.

But that is not how annual GDP is calculated.

How to Calculate Annualized GDP Growth Rates

 

[g5000]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

If you are talking about ZIRP, that is not the Treasury. That's the Fed discount window.

 

[Harpy Eagle]

Trump is expanding the economy, that grew at 3.2% in 2018,

where did you come up with this bullshit number?

I averaged the 4 quarterly growth rates.

The annual GDP growth for last year was 3.0 percent.

4th Qtr numbers has not even been published, there is no way to know what the annual growth was

 

[BuckToothMoron]

A couple months ago, I asked the pseudocons what Trump is doing to head off the next crash.

An example I gave of what he could do is here:

Here's the thing about leverage, which Trump's federal regulators could actually do something about if the fucker would get off his fat ass.

The thing about leverage is that when the value of your collateral begins to tank, then your creditors begin making collateral calls, demanding cash up front to offset the loss in value of your collateral.

If you are way over-leveraged, and your collateral has seriously tanked, then you won't be able to find enough cash. When that happens, it is like blood in the water, and the entire planet turns on you, your stock plummets to the floor, and your company disappears in the wink of an eye.

Then the market begins wondering who else has a liquidity problem. It becomes a "rush to the exits".


Regulators can minimize this effect AHEAD OF TIME, by stopping assholes from overleveraging themselves.

Bush did the exact opposite. He actually allowed the broker-dealers to DECREASE their capital reserves.

When Lehman went under, it was leveraged something like 70 times.

Private/corporate debt is at record high numbers, kids. Way, way higher than before the 2007-2009 crash. Way higher.

So as the value of stocks (which are used as collateral) starts to tank, or the value of bonds which were issued during the ZIRP/QE years begin to devalue as interest rates rise, then watch out.


Trump and his regulators better start taking a hard look at collateral chains. And fast.

See next post.

I don’t disagree totally with your view, but the question will always be how much leverage is too much. And that is a moving target. Entities need to leverage during boom times to maximize gains, so no leverage is not good. Not many people would ever buy a house if they couldn’t borrow against future income.

 

[Ambivalent1]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

If you are talking about ZIRP, that is not the Treasury. That's the Fed discount window.

LOL, son EVERYTHING begins and ends with the Fed. We print bonds, they buy them. ALL of the Gov is complicit in this fraud, not just Trump as you pretend.

 

[g5000]

Private/corporate debt is at record high numbers, kids. Way, way higher than before the 2007-2009 crash. Way higher.

So is nominal GDP.

Allow me to educate you on the debt-to-GDP ratio.

Private and public debt have grown much faster than GDP. With a lot of help from Trump, who has doubled our deficits.

 

[g5000]

Yes, the crash when it comes, will again somehow be poor people's fault.

No it will be the Banks and their lending policies, the poor are just collateral damage.

The Banks got to double dip, they got Bush's and Bammy's bailout money AND the houses they foreclosed on.
Pretty good gig eh?

Banksters also went to the Treasury Dept.'s window to get 0(zero)% loans for a long time.
Where does the average person get 0% loans?

If you are talking about ZIRP, that is not the Treasury. That's the Fed discount window.

LOL, son EVERYTHING begins and ends with the Fed. We print bonds, they buy them. ALL of the Gov is complicit in this fraud, not just Trump as you pretend.

I am way, way, way ahead of you: The Fed's Bond Bubble Doomsday Machine


Trump, as President, can either exacerbate or mitigate our leverage problem. He has exacerbated it.

 

[kyzr]

Trump is expanding the economy, that grew at 3.2% in 2018, he cut taxes so Corporations don't need to flee to Ireland, he's renegotiating bad trade deals, bringing back a lot of good jobs and $billions of dollars of repatriations. Inflation is about 2%, so the Fed should not be raising rates aggressively. The long term health of the US economy looks good.

Trump also has these "promises kept":
JOBS
Signed the first major tax reform in 30 years.
Federal revenues are increasing as the economy grows. April 2018 had a record surplus of $214 billion.
Over 500 companies (507) have announced bonuses, wage increases, and new investments.
Businesses have invested $482 billion in new American projects and employees.
More than 4.8 million workers received increased wages or bonuses (3.7% of all private workers).
Provided $1.5 trillion in tax cuts to individuals.
American families received $3.2 trillion in gross tax cuts and saw the child tax credit double.
A family of four making $73,000 will get a cut of over $2,000-cutting their taxes in half.
Nearly doubled the standard deduction.
Repealed Obamacare’s burdensome individual mandate.
The bill provides a 20% deduction for small business income, which means $415 billion tax cut.
Lowered the corporate tax rate from the highest in the industrialized world (35%) to 21%.
Since President Trump was elected, the American economy has added 3.7 million jobs. One in every 10 of those jobs has been in manufacturing.
Executive Order to create apprenticeship programs, providing many more Americans access to an affordable education that leads to a well-paying job.

ECONOMY
Eliminated regulations at a two-to-one ratio, issuing 2 deregulatory actions for every new regulatory action.
Rolled back rules and regulations harming farmers and energy producers, such as the Waters of the United States Rule and the Clean Power Plan.
Regional and community banks and credit unions got relief after President Trump signed legislation reducing harmful requirements imposed by the Dodd-Frank Act.
Since President Trump’s election, more than $5 trillion in wealth has been created for the U.S. economy.
1Q18 economy grew 2.3%
2Q18 economy grew 4.2%
3Q18 economy grew 3.5%
4Q18 economy 2.8%
2018 full year 3.2%

TRADE
Withdrew the United States from the Trans-Pacific Partnership agreement.
Working to defend American intellectual property from China's unfair practices through a range of actions.
Improved the KORUS trade agreement, which allows more U.S. automobile exports with lower tariffs and increases U.S. pharmaceutical access to South Korea.
American agriculture has gained access to new markets under President Trump.

ENERGY & ENVIRONMENT
The Department of the Interior proposed its largest oil and gas lease of over 76 million acres in the Gulf of Mexico.
Executive Order to expand offshore oil and gas drilling and open more leases to develop offshore drilling.
Acted aggressively to increase exports of energy resources to the global market. This allowed financing for coal and fossil energy projects.
The Department of Energy announced the approval of the Lake Charles Liquefied Natural Gas terminal.
American LNG export opportunities increased under the Trump Administration.
Oil and gas development was unleashed because of expanded resources and infrastructure needed to get them to market.
Approved the Keystone XL and Dakota Access pipelines, supporting an estimated total of 42,000 indirect jobs and $2 billion in wages.
Approved the New Burgos Pipeline, a cross-border project that will export U.S. gasoline to Mexico.
Promoted responsible oil and gas development on Federal lands.
Directed the Environmental Protection Agency (EPA) to rescind the Obama Administration’s Clean Power Plan (CPP).
According to NERA Economic Consulting, the CPP would have increased electricity rates by as much as 14 percent, costing American households up to $79 billion.
The EPA reconsidered Obama-era rule on methane emissions that would cost American energy developers an estimated $530 million annually.
The EPA was directed by the Energy Independence Executive Order to repeal of the Clean Power Plan.
The Administration estimates that repealing the Clean Power Plan could eliminate up to $33 billion in compliance costs in 2030.
Signed legislation to open the Arctic National Wildlife Refuge (ANWR) to develop domestic energy production.
Kept campaign promise to get America out of the Paris Climate Agreement, saving taxpayers billions of dollars.

Our trade deficit has INCREASED since Trump started his left wing protectionist trade war.

Since US government spending is a big chunk of US GDP, Trump DOUBLED the federal deficit in order to artificially juice the GDP. And you tards fell for it.

Not only did you fall for it, you are dead silent about his record big government spending.

Trump's fake tax cut transferred $1.5 trillion of debt onto the backs of the unborn. While you bemoaned Obama's "stimulus" spending, you went full retard uber-Keynesian with Trump's stimulus spending.

The Dow tanked as soon as Trump started his trade war, and the deficit is now twice what it was when he took office.

Trump was elected on third base, and now he's trying to steal second!

Agreed that the short term trade deficit went up, but its the long term that is important. Trump did not yet negotiate the real trade deal with China, and the trade war didn't start since he didn't impose the big tariffs yet. The bigger trade deficit is panic buying before the tariffs kick in.

I don't like big government spending, but the DOD needs what it needs, and gets what it needs (I have relatives in the military). Maybe we need a smaller role globally? Spend less, sanction more.

Trump is just starting to manage the US economy, with the environment of the Fed raising rates AND unwinding their balance sheet by $50b a month. So its a tougher road than Obama had with zero interest rates.

 

[BuckToothMoron]

Investors have a new biggest worry about the stock market

For the first time since the financial crisis, corporate leverage is the chief concern for the professional investors who handle Wall Street’s largest funds.

<snip>

Debt has emerged as a bigger concern with corporate bonds outstanding now eclipsing the $9 trillion mark. Investors have gotten more concerned over leverage, or the amount of debt companies hold compared to the value of their equity.

A net 48 percent of the market pros surveyed believe corporate balance sheets are overlevered.

<snip>

This is the first time since 2009, or just after the financial crisis, that investors have listed leverage as their principal concern. Companies spent the years after the crisis raising cash but also running up debt, which had become cheap as the Federal Reserve slashed interest rates in an effort to stimulate the economy.


The cash to debt ratio reached 12 percent in 2017, the lowest it had been since 2008.

<snip>

Pessimism about global growth have intensified, with 60 percent indicating that a slowdown in GDP gains is coming over the next 12 months. That’s the worst outlook since the depths of the crisis in July 2008, just two months before Lehman Brothers collapsed and set off a global financial panic.

However, investors do not believe conditions will get bad enough for a recession, with just 14 percent seeing negative growth. Instead, they see a condition known as “secular stagnation,” which posits that the global economy is in a long-term stasis in which growth will remain below trend.

Much of the corporate debt is due directly to the Fed policies ZIRP and QE. In a misguided belief that they could create growth where there was no demand, they instead created malinvestment in overpriced stocks and real estate. This has been hidden in large part to companies borrowing to buy back their own stock which inflated PEs. It will all get unwound and will hurt a lot of boomers trying to retire.

 

[kyzr]

Trump is expanding the economy, that grew at 3.2% in 2018,

where did you come up with this bullshit number?

I averaged the 4 quarterly growth rates.

The annual GDP growth for last year was 3.0 percent.

4th Qtr numbers has not even been published, there is no way to know what the annual growth was

I used 2.8% from here GDPNow - Federal Reserve Bank of Atlanta

 

[g5000]

A couple months ago, I asked the pseudocons what Trump is doing to head off the next crash.

An example I gave of what he could do is here:

Here's the thing about leverage, which Trump's federal regulators could actually do something about if the fucker would get off his fat ass.

The thing about leverage is that when the value of your collateral begins to tank, then your creditors begin making collateral calls, demanding cash up front to offset the loss in value of your collateral.

If you are way over-leveraged, and your collateral has seriously tanked, then you won't be able to find enough cash. When that happens, it is like blood in the water, and the entire planet turns on you, your stock plummets to the floor, and your company disappears in the wink of an eye.

Then the market begins wondering who else has a liquidity problem. It becomes a "rush to the exits".


Regulators can minimize this effect AHEAD OF TIME, by stopping assholes from overleveraging themselves.

Bush did the exact opposite. He actually allowed the broker-dealers to DECREASE their capital reserves.

When Lehman went under, it was leveraged something like 70 times.

Private/corporate debt is at record high numbers, kids. Way, way higher than before the 2007-2009 crash. Way higher.

So as the value of stocks (which are used as collateral) starts to tank, or the value of bonds which were issued during the ZIRP/QE years begin to devalue as interest rates rise, then watch out.


Trump and his regulators better start taking a hard look at collateral chains. And fast.

See next post.

I don’t disagree totally with your view, but the question will always be how much leverage is too much. And that is a moving target. Entities need to leverage during boom times to maximize gains, so no leverage is not good. Not many people would ever buy a house if they couldn’t borrow against future income.

Let's say you earn $100,000 a year and have an 800 credit rating. And let's say you have $50,000 of credit car and auto loan debt.

You are a good risk for a $250,000 mortgage.

But you are a horrible risk for a $700,000 ARM, right?


That's pretty much what happened in the last bubble. And that is what is happening now with corporate debt.

 

[BuckToothMoron]

Yes, the crash when it comes, will again somehow be poor people's fault.

I don’t recall poor people ever getting blamed for a crash. What did I miss?

 

[BuckToothMoron]

Investors have a new biggest worry about the stock market

For the first time since the financial crisis, corporate leverage is the chief concern for the professional investors who handle Wall Street’s largest funds.

<snip>

Debt has emerged as a bigger concern with corporate bonds outstanding now eclipsing the $9 trillion mark. Investors have gotten more concerned over leverage, or the amount of debt companies hold compared to the value of their equity.

A net 48 percent of the market pros surveyed believe corporate balance sheets are overlevered.

<snip>

This is the first time since 2009, or just after the financial crisis, that investors have listed leverage as their principal concern. Companies spent the years after the crisis raising cash but also running up debt, which had become cheap as the Federal Reserve slashed interest rates in an effort to stimulate the economy.


The cash to debt ratio reached 12 percent in 2017, the lowest it had been since 2008.

<snip>

Pessimism about global growth have intensified, with 60 percent indicating that a slowdown in GDP gains is coming over the next 12 months. That’s the worst outlook since the depths of the crisis in July 2008, just two months before Lehman Brothers collapsed and set off a global financial panic.

However, investors do not believe conditions will get bad enough for a recession, with just 14 percent seeing negative growth. Instead, they see a condition known as “secular stagnation,” which posits that the global economy is in a long-term stasis in which growth will remain below trend.

Read Tragedy and Hope, you'll find that debt is what runs the economy.

Money runs the economy, debt creates money.