The major averages enter the final hour mixed on little real news. Walmart warns of higher prices related to tariffs. Since Monday the Standard and Poors 500 Index is up 30 points or 1%, while the NASDAQ has gained 22 points or .28%.
On the 10-year anniversary of the Great Financial Crisis it’s worth looking back on lessons learned and those unlearned or forgotten. While many pinned the blame on poor sub-prime borrowers or figured that it was a real estate driven crisis. Real Estate was simply the poster child for what was a derivatives, or financial weapons of mass destruction crisis, as without them it would never have gone global, or spread contagion as rapidly as it did. Debt or collateral, or specifically its impairment was a secondary cause. Very few if any widely known economists, pundits, central bankers, or other financial luminaries saw it coming. The initial foreign reaction was that it was an “American Problem”. Of course it soon went global and were it not for a US Treasury led bailout the result could have been a lot worse. Which brings us to the present. Debt levels are far higher today than they were 10-years ago. Though much more diversified, not that I think it will make much difference ultimately. Too big to fail, or jail is much larger. Derivatives trading is back with a vengeance as is financial market leverage or margin. While various Dollar denominated funding vehicles have come back into vogue in numerous foreign and emerging markets. This last item is a large part of the problems currently seen in emerging markets. It also was the trigger of the first significant bank failure of the period when England’s Northern Rock failed in late 2007. Ultimately the Fed became the lender of last resort as only they could provide the Dollars needed to avert the crisis. The Europeans have conveniently forgotten their mistakes and believe they’ll be just fine without the US should another crisis occur. While Asia, specifically Russia, China and India were excluded from the Fed’s lending programs during the previous crisis. Many predicted the demise of the Dollar as the world’s reserve currency. In the post crisis period it has gone from being the peg for 60% of global currencies to 70%. Mostly at the expense of the Europeans whose banking system is still a mess 11- years after the crisis while it frays politically ala Brexit and other issues. With emerging markets up to their eyeballs in US Dollar denominated funding mechanisms and the worlds #2 and severely indebted economy China being on the outside. You have to wonder if the Federal Reserve will be able to ride to the rescue once again, should another crisis occur.
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