Remember 2008? Massive debt in the form of failed mortgages and packages of debt so convoluted that parts of Wall Street were selling them and then betting against them at the same time?
Remember the auto industry bailout, nearly a billion bucks in federal emergency relief, millions of people out of work, long-term unemployment, rampant foreclosures?
Nope? Well then join Congress and Wall Street, because it seems clear that despite all the evidence from the previous disaster, we could wind up doing it all over again.
In two recent, but fascinatingly inter-related, articles, the NY Times spells out what is happening -- below the orange collateralized debt tangle:
Read the following two articles in order:
Kicking Dodd-Frank in the Teeth
A central element of the bill (buried in the recent "Cromnibus" legislation) chipped away at part of the Volcker Rule, the regulation intended to reduce speculative trading activities among federally insured banks. The bill would give the institutions holding collateralized loan obligations — bundles of debt — two additional years to sell those stakes.
The sales were required under the Volcker Rule, which bars banks from ownership in or relationships with hedge funds or private equity firms, many of which issue and oversee these instruments. Like the mortgage pools that wreaked such havoc with United States banks in the most recent crisis, C.L.O.s can pose high risks for banks.
The creation of such securities has been torrid recently; $124.1 billion was issued last year, compared with $82.61 billion in 2013, according to S&P Capital IQ. Among the banks with the largest C.L.O. exposures are JPMorgan Chase and Wells Fargo; according to SNL Financial, a research firm, JPMorgan Chase held $30 billion and Wells Fargo $22.5 billion in the third quarter of 2014, the most recent figures available.
Banks Serving the Energy Industry Brace for Jolt
Two of the banks that may be the hardest hit by lower investment-banking fees are among the biggest. Wells Fargo derived about 15 percent of its investment banking fee revenue last year from the oil and gas industry, while at Citigroup, the business accounted for roughly 12 percent, according to the data provider Dealogic.
At some of the larger banks in Canada, a slowdown in fees could be even more pronounced. At Scotiabank, about 35 percent of its investment banking revenue came from oil and gas companies last year.
And Wall Street firms that financed energy deals may now have trouble offloading some of the debt, as they had originally planned. Morgan Stanley, for instance, led a group of banks that made $850 million of loans to Vine Oil and Gas, an affiliate of Blackstone, a private equity firm. Morgan Stanley is still trying to sell the debt, according to a person briefed on the transaction. Similarly, Goldman Sachs and UBS led a $220 million loan last year to the private equity firm Apollo Global Management to buy Express Energy Services. Not all the debt has been sold to other investors, according to people briefed on the transaction.
A precipitous drop in oil prices can quickly turn loans that once seemed safe and conservatively underwritten into risky assets.
I have a question for any Congressperson who has supported gutting of Dodd-Frank.
"If there is another bank catastrophe similar to 2008, how are you going to justify the votes you just made to make it possible?"
If this happens again, there could be pitchforks and tumbrels!!!!