Coronavirus

[Oracle]

So corona was a pin that burst a bubble, but what will bring the banks crashing down?

Here’s an acronym you have yet to hear: CLO.

What brought the system to its knees in 2008 was sub prime collateral mortgages, Packaged as safe investments, CMO then derivatives and insurances are taken on those which multiplied risk till the card tower collapsed.

Same problem is building with loans to businesses repackaged as CLO. These have existed for years, but all have become sub prime. Since unfairly corona has been completely dumped on business , with public sector paying not a penny, now banks are now being ordered to finance the unfinancable with new lending to add insult to injury.

If I were a bank I would not do it. Governments must. These big packages of loans will mostly default: even prudent lending from past years has been destroyed by corona shutdown.. Derivitization and confidence runs on banks will do the rest.

Watch this space.