Executive Intelligence Review


Sheila Bair: Big Banks Bringing on Another Crash

March 19, 2018 (EIRNS)—In a Barron’s interview on March 1, former FDIC head Sheila Bair registered strong warnings about the current unsoundness of the U.S. banking system and the severe explosiveness of the corporate and household debt bubbles. Investopedia prefaces its March 5 coverage of her interview referring to Bair’s set-to with Alan Greenspan 13 years ago, over her warning then of a subprime mortgage meltdown.

Bair says that now the danger of a crisis is caused by the fact that Wall Street banks have been allowed by Treasury to lower their capital ratios over the past year, and Congress is about to allow them much larger capital reductions, as large as $26 billion for JPMorgan Chase. “To loosen capital now is just crazy. Banks won’t have the cushion to absorb the losses. Without a cushion, we will have 2008 and 2009 again.”

Investopedia repeated their report from last year that

“An independent research arm of the U.S. Treasury Department has found that the financial system still would be in great peril if one or more big banks fail”

(referring to Treasury Office of Financial Research, which Congress is trying to eliminate.) The site continues summarizing Bair that

“soaring corporate debt with overvalued collateral: loans that finance corporate leveraged buyouts, and general corporate debt. ‘Any type of secured lending backed by an asset that is overvalued should be a concern. That is what happened with housing.’ ”

As if to illustrate, American Banker March 16 reports:

“More and more nonbank lenders are taking advantage of the strong appetite for short-term, floating-rate debt to bundle bridge loans into collateral for vehicles called commercial real estate collateralized loan obligations, or CRE CLOs.... This lending is white hot.”

And Bloomberg News March 14 reported a study by Thomson Reuters that U.S. non-financial corporate debt has actually now reached $19 trillion, and that it is roughly equal to U.S. GDP for the first time in the history of such records going back to World War I.

Investopedia concludes its paraphrase, praising China:

“Banks and regulators alike in China are increasingly concerned about risk management, credit quality, and nonperforming loans. Prudence and sustainable growth are becoming watchwords. ‘I’m struck by the difference in the tone of the political leadership—with Xi talking about deleveraging, constraining asset bubbles, and accepting short-term tradeoffs to growth for long-term stability. Contrast that to the U.S., where we have a move to deregulation and borrowing more.’ ”