The Warning: A Financial Cauldron of Very High Leverage and Interwoven Risks
jessescrossroadscafe.blogspot.com / 18 DECEMBER 2015
“The current bubbles in junk bonds and foreign debt are not in any way driving the economy. Presumably we are seeing somewhat more investment as a result of the fact that uncreditworthy companies were able to borrow at a low cost, but there is no notable boom in such investment.
Similarly, if foreign borrowers have a harder time getting access to credit, it may be bad news for them, but the impact on the U.S. economy will be limited.
If some banks or other financial institutions have over committed themselves in these areas, the plunge in prices may threaten their survival. This could lead to some late nights for folks at the Fed and other regulators, but it will not pose a major risk to the economy.”
Dean Baker, Bubbles that We Have to Worry About and Bubbles We Don’t, 18 December 2015
And how large was Long Term Capital Management? And the Knickerbocker Trust?
Could they have been said to be ‘driving the economy?
And most importantly, is the failure of any major financial institution likely to be an ‘isolated incident’ in this current financial structure?
I like Dean Baker quite a bit, and read his column every day, often linking to it.
But he may be greatly underestimating the size and interconnectedness and the leverage in the derivatives markets, which while it is a bit harder to see than the housing or tech bubbles is nonetheless there and even more deadly.
The post The Warning: A Financial Cauldron of Very High Leverage and Interwoven Risks appeared first on Silver For The People.
Source: http://silveristhenew.com/2015/12/18/the-warning-a-financial-cauldron-of-very-high-leverage-and-interwoven-risks/
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