We didn’t learn anything from the GFC did we?
When the run on the banks and the stock market started during the GFC it happened in a rush. It was like watching milk boiling in a pan, one minute it’s a flat creamy surface, then suddenly it’s a frothy mess, hurtling over the edge and scorching everything into a stinking charred mess.
According to UBS, a Swiss financial group which accesses investor risk, the risk of a property bubble is very high. The truly scary part is how wide spread the bubbles are. Europe, North America, Asia and Australia all have major cities that are in very high risk territory and numerous other cities are overvalued. The graph above shows some of the risk.
The big question is what will the catalyst be this time?
The last time it was Lehman’s bank, this time it could be Deutsche Bank.
Deutsche bank is Germany’s largest bank. It’s bastion of stability in Europe and generally regarded as being a safe and reliable institution. But is it?
The US Department of Justice is claiming Deutsche Bank owes it $14 billion dollars for its involvement in the US subprime market debacle. They are fighting this as it is nearly all of the banks capitalization and would literally break it. Deutsche bank’s share price is the lowest since 1992 and still dropping with the contagion spreading to other bank stock values.
Deutsche Bank also has a $42 trillion dollar exposure to derivatives. Not billion, trillion. Derivatives were one of the major triggers in the GFC.
Anyone else getting a sense of deja vu? Like we have seen this before? Risk is on, properties over valued and derivatives screaming through the financial system. I seriously want to clap my hand to my forehead and shout at these people.
“YOU’RE DOING IT AGAIN DICKHEADS!”
Angela Merkel and the German government have said they won’t bail out the banks, they will let them go bust. This will go through Europe like hammer down the edge of a glass tower.
If this happens, fear sets into the markets. The banks stop lending and we have a liquidity crisis. It will be impossible to get a loan without a massive deposit and large assets as collateral. This reduction in buyers means increasing stock levels and sellers will be forced to compete with each other by dropping their prices. The seller may end up with the property being “under water” where the property is worth less than they paid for it and end up in a foul place called Negative Equity.
Buyers can’t buy and sellers can’t sell and result will be another GFC.
“Those who do not learn from the past are doomed to repeat it.”
And yes, Auntie Angie is sick of this shit.