In the runup to the crisis, all it took was reasonably attentive reading of the Financial Times to discern that Things Were Going to End Badly. The big reason was that the pink paper did the best job of reporting on the credit markets of all the major financial outlets (Bloomberg did provide some corroboration). As the crisis progressed, the Wall Street Journal and the New York Times were forced to up their credit market game.
It is important to understand that financial crises are credit crises. The dot-com bubble was enormous, and margin debt was at a high level before it imploded. But the amount of borrowing related to equities simply wasn’t that large relative to the economy. Similarly, even though end of the Japanese bubble era did feature a major stock market contraction, the really reckless behavior was banks lending against land in major cities, particularly Tokyo. The value of real estate in Japan is attributed almost entirely to land, and the valuations had nothing to do with the income it produced. Companies simply never sold land. It was so highly prized that it would have been seen as signaling a level of desperation tantamount to selling your children into slavery. And on top of that, taxes on land sales were so steep as to produce a further disincentive. So with virtually no sales happening, valuations were disconnected from any discernible reality. Yet Japanese banks would lend 100% against the value of land in urban centers. And residential real estate was frothy, with 50 year mortgages the norm.
I’m getting a bad case of déjà vu from reading the Financial Times over the last week. And remember, this comes against a backdrop of a rise in investors willing to take on more credit risk out of desperation for yield. For instance, see this March Bloomberg story about subprime auto loans:
A three-year lending boom to car buyers with spotty credit that helped push auto sales to a six-year high is starting to show signs of overheating.
The percentage of loans packaged into securities that are more than 30 days late rose 1.43 percentage points to 7.59 percent in the 12 months ended September 30, according to Standard & Poor’s. That’s the highest in at least three years, the data released last week by the New York-based ratings company show.
Here are some of the stories showing the frothinesss in other markets:
This Time It’s Different, Not. Bundled debt demand reaching levels of height of crisis, Financial Times, from Monday. This story discusses how investors are eager to invest in collateralized loan obligations, which are CDOs made of leveraged loans created mainly via private equity acquisition financing. Note that is not quite as bad as that sounds, since CLOs were merely badly damaged during the crisis just passed, while what are commonly described as CDOs, which were made from heavily subprime-related credits, had much less risk diversification and were much more prone to catastrophic failure (and fail they did).
However, what is disconcerting about this piece is the barmy pretense that these new CLOs are superior to the pre-crisis versions:
Sales of CLOs, which pool leveraged loans made to low-rated companies, dried up in the years after the global crisis but have since come roaring back as investors seek out the higher returns on offer from buoyant credit markets…
Sales of CLOs in the US so far this year have reached 42bn and analysts are upping their full-year forecasts to as much as $100bn, which means issuance could easily surpass the $89bn sold in 2007 and potentially even the $97bn sold at the CLO market’s peak in 2006.
The CLOs sold now, known as “CLO 2.0s”, differ from their pre-crisis predecessors. Bankers pack the second generation of the products with additional financial support and have stricter rules about underlying collateral that are meant to make the securitisations safer.
One of my credit market mavens, by e-mail, begged to differ:
There is no new CLO structure. People are referring to the post-crisis world as CLO 2.0, but very little has really changed: some tinkering with the reinvestment period, collateral mixes etc. Many changes for the benefit of equity, lip service for the senior investors.
The rating agencies put out new criteria that were mostly just gobbly-gook. The only substantive change is not a deal level requirement but an issuer level one: the 5% retention requirement.
CLOs are just hedge funds for high yield loans with a slight bit of structure imposed on them. What matters is the manager, what he buys and how he buys (price, duration, etc.). The structure is pretty much an afterthought – it is a way to trigger and “fast” pay the pool if credit deteriorates. Most of the managers are just buying the market for HY loans (with 40% turnover or so a year in the investment pool) – few specialize in a sub sector. So any trigger event is usually a market wide one, not a portfolio specific one.
See this example of nonsense being passed off as change: https://gupea.ub.gu.se/bitstream/2077/33349/1/gupea_2077_33349_1.pdf
Careless Risk Acceptance. We see the related phenomenon of investors throwing what little caution they had to the wind via compromising on investor protections. Two recent examples:
Investors give up protection in ‘junk’ loans scramble Financial Times, today.
Investors in loans made to US junk-rated companies are giving up basic protection as they scramble for higher-yielding securities in a market that regulators warn could be overheating.
Call protection penalises corporate borrowers for repaying their loans at an early stage and was once a basic feature embedded in the majority of “leveraged loans” made to companies below investment grade. Investors generally like the call protection since it means they do not have to reinvest their money.
But in recent months the balance of power has tipped further in favour of corporate borrowers who can dictate the terms of loans. With demand for loan securities high, investors have been willing to buy higher-yielding loans with fewer safeguards – known as covenants – and with shorter call protection periods.
Kroll rates Invitation Homes $1B single-family securitization Housing Wire, last Friday. Key section of the story on the latest Blackstone rental securitization:
There are also two distinct differences related to tenancy in the IH 2014-SFR1 as compared to the prior SFR transactions, Kroll said.
For starters, all three prior SFR [single family rental] deals had fully occupied collateral at the time of the related securitization’s closing date; however, 5.1% of the properties in the IH 2014-SFR1 portfolio are currently vacant. Vacant homes create a burden on the borrower because these homes generate no income to offset fixed expenses such as real estate taxes, insurance and HOA fees, if applicable. However, KBRA’s analysis assumes that the portfolio will operate with some level of ongoing vacancy, which is typical for income-producing commercial real estate, including multifamily. In performing its analysis, KBRA applied a 10% vacancy rate assumption to the in-place gross revenue generated by each property, which is approximately double the actual vacancy rate of the portfolio.
Secondly, in all prior SFR transactions, each tenant was required to satisfy the requirements for an “Eligible Tenant”. The concept related to tenant quality and the criteria included, in the case of IH 2013-SFR1, the satisfaction of a minimum rent-to-income ratio and confirmation that the tenant was not subject to a current bankruptcy action prior to the execution of the lease. Failure to comply with the eligible tenant requirement would cause the related property to become a “disqualified property” that must be removed from the collateral through prepayment or substitution (unless the borrower deposited 100% of the allocated loan amount for such property in a reserve account).
“In the current transaction, the eligible tenant concept was removed; however, the property manager continues to employ a screening process that includes a review of credit and income, rental history and prior evictions and a background check for criminal activity,” the report states.
Translation: First, unlike the 3 previous rental securitizations, not all homes are rented in this one (5% are vacant at the start). Second, the deal no longer has an “eligible tenant” requirement, effectively a promise that current and future tenants would be credit worthy.
Land Rush into Novel, Untested Products. Jumping on the peer-to-peer gravy train FT Alphaville, Wednseday:
Hey, how would you like to invest in US credit card debt, via the UK’s tax free regime of individual saving’s accounts? You can’t yet, but the hedge fund Marshall Wace and broker Liberum are aiming to raise £197m for a investment trust listed in London to do just that.
For possible catches, you might turn to the 96 page prospectus that dwells on the risks at hand. But the chief pause for thought might be that this will be an expensive way to lend money to consumers and small businesses, offset by the use of some leverage to juice the returns back up.
Now, of course, this is all completely rational and in fact what we predicted. Blowing up the world economy was a very profitable exercise for the bankers involved. They got record bonuses in 2007 and even higher bonuses in 2009 and 2010. And the surviving firms emerged politically more powerful and too bigger to fail. Admittedly, while ZIRP and QE initially provided a lot of juice to bank earnings, a fairly flat yield curve, the absence of profit on float, and diminished volatility have over time taken away some easy and important financial firm profit sources, which has in the last year led to less robust bonuses and some headcount trimming. Nevertheless, as widening income and wealth disparity statistics confirm, the financiers came out well, which means they have no incentive not to revert to their old, successful strategies.
Now that central banks have improves their rescue playbooks, a September-October 2008 outcome seems unlikely. But the diversion of resources and profits from potentially productive real economy to the credit market casino has only become more deeply institutionalized. It’s hard to see how this resolves, but the ending is unlikely to be happy for ordinary citizens.
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How is it likely to end? I know what I think but that means nothing. I’m interested in what the many intelligent people who write and post here think is possible. I suspect the reasoning will be more complex than the hyperinflation doom and gloom crowd who are all in business to sell gold. Thanks!
I guess at some point the economy will slow down… we are due for a cyclial recession wn after 5 years of “growth”… however this time there will be no rescue via rate cuts, no refi… corporate spreads are going to shoot up… bankruptcies or more bailouts?
Hard to believe equities will fare better than corporates as these get converted into equity…
But in the meantime corporate earnings to GDP still at an all-time high, so it looks like this can last for quite a few more quarters. See page 21 of this report:
http://research.stlouisfed.org/publications/net/page21.pdf
Corporate earnings will probably remain high until someone call a BS on the HP maneuver i.e. fire 50K workers, issue more debt to fund more share repurchase.
We don’t need hyperinflation to destroy household finances.
4-6% inflation for a decade amid 2-3% treasury yields while equities and corporates see-saw a few times. These are enough to do them in.
Inlfation, deflation… whatever; it’s all about loss of purchasing power.
deflation in wages for the 99%
deflation in TVs
deflation in t-shirts
Inflation in health care
inflation in college education
But, we will soon be able to monetize on those under utilized spare parts we have – do we really need TWO lungs???? TWO eyes??? TWO Kidneys???? And you don’t really need yards of intestines…..
I have invented a new financial instrument (like reverse mortgages) to take advantage of this valuable resource, with the acronym:
F*CKYOUs DS
Financial utilization credit kappa yield obligations underlying securitys (default swaps – I put the DS on to give it some cachet…..)
Now some cynical naysayers may say that a lot of people will die unpredictably, and will…..spoil before their organs can be harvested. We have MATHEMATICAL equations that tell us when everybody will die….
And we got tranches….
Nothing can go wrong.
Collapse 2008 version 2.00
Just look at a chart of any stock index since the late Nineties, such as this one of the S&P 500 index:
http://biiwii.com/wordpress/wp-content/uploads/2014/04/spx11.png
These are the high points of our sequential-bubble economy:
2000: Bubble I (tech, media, telecom)
2007: Bubble II (property, CLOs, crude oil, stocks)
2014: Bubble III (bonds, stocks, commodities, credit)
This is BYG (Bernanke-Yellen-Greenspan) … really BYG. More plutocrats have been created by the past 20 years of Fed policy than in the entire rest of human history. Money for nothin’ ….
Are you sure that BYG doesn’t mean “Bring Your Guillotine”?
After reading the story on margin debt that was linked to the other day, I took a look at S&P 500 closes from 1950 to the present, and wow…something big changed in 1995!
There is a noticeable increase in slope in 1980, but in 1995 things really take off. Boom-bust-boom-bust-boom. Just looking at that chart, or yours, it seems obvious that it’s time for another major collapse…er, market correction. As to what happened in ’95…de-reg, Travelers’ and Citi merged, the beginning of the downward spiral, etc…
How high will we go, that’s the big question. Each time the trajectory just gets steeper.
In 1994, the Greenspan Fed quietly authorized banks to sweep demand deposits (which have reserve requirements) into savings deposits (which don’t) overnight. The first chart in this New York Fed paper exactly mirrors the blast-off in the S&P beginning in 1995:
http://www.ny.frb.org/research/epr/02v08n1/0205benn/0205benn.html
Not only did the Fed set off a monster credit bubble, it is perpetrating a scam on depositors whose ‘on demand’ checking accounts turn into savings accounts when the sun goes down. Regulation D places a limit of six withdrawals or outgoing transfers per month from savings or money market accounts.
Should our fairy godmother Yellen fail one morning to transform our savings account pumpkins back into demand-deposit golden carriages with the wave of her wand, there are going to be some very unhappy depositors. My bank actually notified me about their overnight sweeps in 1995. But most people don’t have a clue about this sleazy subterfuge.
Great comment. Remarkable link. Thx.
Also too, Greenspan Put
He actually invented it after Black Monday ’87
http://blogs.reuters.com/james-saft/2012/10/19/black-monday-and-the-greenspan-put-james-saft/
Then after the mild ’92 ’93 recession he began getting concerned about inflation, invented the Greenspan Call and rapidly raised rates. Orange County, CA and Mexico blew up. Long term pressure buildup in the Asian Tigers, and, what the hey, why not pressure on Russian bonds and LTCM too? I’d believe it.
The “Call” was unpopular and Greenspan decided to discontinue it from 1995 on. The “Put” was good, and we lived happily ever after.
So much for monetary policy.
This is a result of having too much financial wealth for the real borrowing needs of the economy. The financial wealth of the economy has to be reduced at some point; with the choices being inflation, taxes, or panic. Since inflation and taxes are currently politically intolerable, a crash seems nigh-inevitable, with the only question being when. The rule on these things is that the bubbles go on far longer than almost any rational person can believe, so expect a long ride.
I expect a long ride because bubbles are essential to our political economy. Society, as we know it, cannot exist without bubbles–I believe in a small series of small bubbles, carefully managed by the emergent network of international oligarchs–see my comment below.
Yves, I’m a Broker associate in the Wine Country, and home sales have dropped YoY over the last month. Inventory is up ( Still below a 3 month supply) as are prices. We are also seeing lending loosening with a new product called “EOM Loans” that allow gifting of the 3 % down payment and also loans to 95% LTV with no PMI. It’s actually two markets, the $1MM plus sales are actually up significantly with many of those deals all cash. The coming crash will take the next quintile up and destroy it, just like the bottom 60% have been stripped of wealth. Interesting times….
I was at a gathering of hedge fund and funds management yesterday night here in Hong Kong, got chatting with one of the hedge fund blokes – he was wallowing in it, could not lose was his opinion, however, when started to discuss the likelihood of it all going tits up, his opinion was direct and most interesting, he said the danger year would most likely be 2017, by which time he would have cashed in, whilst we the tax payer once more pick up the tab.
Nice people these hedge fund managers – and talk of moral hazard, what moral hazard!!!!!!!
In my PM years, I often revelled in bringing up topics that would make most want to crawl out of their skin. I would ask colleagues what they thought about moral hazard and their view on being your brother’s keeper. The typical answer was take care of number one ’cause nobody will. Then they would add that one’s responsibility stopped at family and everything else takes care of itself.
Today, I can’t believe I lasted 15 years in an environment full of sociopaths.
I don’t agree that they are sociopaths–they are normal people. Most people, in all walks of life, say much of the same thing. To be normal, to be part of our cultural narrative, we must think that way–without it our society cannot function. I believe most people believe it is their duty to be selfish and see themselves as upstanding members of society and they are right.
That is why no change to our political and economic system can occur unless the cultural narrative changes. It will not change unless we promote, everywhere we interact, social morality and moral philosophy as central issues that determine the outcome of every major crisis we face–climate change being the most dramatic.
Bang on.
Most people I have had dealings with would I think take the money & most of them believe the way to happiness is through riches – Despite a fair few of them working for fairly affluent miserable bosses.
Well chaps, I have nada, zero, and you know what, I’m quite content – indeed, for the past 6 years after being laid off as a result of the GFC I’ve had an opportunity to see my baby daughter blossom into a fine “nearly” seven year old, and I love her dearly.
So sorry, all the money in the world could not have bribed me to miss that greatest of opportunities. Hence I don’t really understand greed, and it is greed – perhaps all we require is enough for a decent life, a roof over our heads, food in our bellies and not too worry about ill health or ageing – you know, the things we took for granted before the greedy buggers decided enough actually was not enough, and lets be honest, even if they had it all, they’d still not be satiated – their loss, not mine. I think its called humility, something they are lacking!!!!
“We act as though comfort and luxury were the chief requirements of life, when all that we need to make us really happy is something to be enthusiastic about.”
― Charles Kingsley
Me financially Nada too but plenty of joy potential & enthusiasm.
Thanks for the quote.
Triarchic model
-Boldness. Low fear including stress-tolerance, toleration of unfamiliarity and danger, and high self-confidence and social assertiveness.
-Disinhibition. Poor impulse control including problems with planning and foresight, lacking affect and urge control, demand for immediate gratification, and poor behavioral restraints
-Meanness. Lacking empathy and close attachments with others, disdain of close attachments, use of cruelty to gain empowerment, exploitative tendencies, defiance of authority, and destructive excitement seeking.
At varying degrees, those I am thinking about fit those 3 criteria.
Hi Banger,
I just read your comment on my “Nature of Money” article that was posted on this website 5 months ago. I am wondering if you could recommend some readings regarding the impact of religions (Christianity, Hinduism, etc) on communitarian societies (as you suggested in your post). I think what you’re hitting on is very interesting and I hope to learn more about it.
Thanks,
Vincent
Bubbles are now folded into the current version of capitalism–without it there can be no growth and everyone knows this. I believe the government negotiated between various corporate factions to keep bubbles small (a series of small bubbles rather than one big one) and keep the worst of outright fraud and criminality to a minimum–I believe this was negotiated in exchange for immunity from prosecution and a guarantee that the government bail out big firms and stabilize markets anytime a crisis emerges–it’s kind of an international virtual insurance scheme involving major institutions like IMF, World Bank and most of the various central banks around the world.
Small bubbles operate like little doses of electricity that are meant to enhance confidence–the froth, as you call it, eventually becomes solid in a world that is all smoke, mirrors, sleight of hand and misdirection. When everything is stage magic then the “magic” becomes part of reality and can even become a commodity of sorts. I think, after 2008, we have entered a new era in international finance. For all this to work, of course, there must be political stability and we are now also in an era where the status-quo is more locked in than at any time in the past century. Change, barring a major crisis, is very unlikely unless it comes from the new aristocracy and its large networks of operatives. We depend, sadly, on the kindness of strangers. Therefore we need to build our own networks just as the ruling elites have done to counteract the worst of their excesses
I don’t think this is about oligarchs. I think that we have a system in which socially productive outcomes and behavior are not well enough rewarded; this is damaging the social system that we all depend on. As it is diminished by billions of selfish decisions each day, driven by an ideology that one only has to ‘look out for Number One’, the quality of our lives diminishes in tiny but cumulative ways.
We have an economic ideology that does not price in socially responsible behavior, and until we do, we will be in worse and worse trouble — personally, and collectively. This takes numerous forms, from the failure to prosecute fraud, to the failure of almost any American leaders (apart from Sen Liz Warren or Sen Bernie Sanders) to articulate what is wrong with the economy and how to fix it.
We have had 30 years of deferring to finance, rather than to manufacturing, or to people who grow things on small scale. We have a system in which amoral decisions (individually and on the corporate level) are viewed as ‘acceptable’ — or, if you watch CNBC, are sometimes exalted.
IMVHO, we are at a point in history where a lot of resources (fisheries, minerals, timber) have been severely depleted: the depletions are all examples of ‘externalities’ that do not adequately price in the very real costs of overfishing, overlogging, or fragile mine systems (see also: recent Turkish disaster).
All this is taking place in an economic system (call it ‘finance capitalism’ or Shock Doctrine Capitalism) in which socially destructive behavior is ‘externalized’ by shitty accounting rules, political influence, and dodgy corporate structures (see also: Richard’s posts on NZ shell companies).
A hundred years ago, people could make fortunes owning timber land, huge ranches, or fleets of fishing boats. Those were productive, profitable enterprises, and the technologies did not enable overlogging and overfishing to the extent that is possible today.
Today, the biggest ‘profit center’ seems to be collecting interest on debt. The lower the credit quality of the borrower, the more the lender can charge. The more the lender can charge, the greater portion of debtor income is siphoned off to interest payments — IOW, debt servitude for college expenses, cars, medical bills, housing… you name it. This is a destructive feedback loop in which things continuously get worse, rather than better, for the majority (i.e., those who pay debt, rather than own it). We are seeing this play out in the EU, in the US.
The ‘oligarchs’ rapidly delegitimizing themselves: accelerated by the post-TARP bailouts, failure to prosecute bankers, and austerity policies – these fools are substantially delegitimizing the very social structures (elections, ‘democracy’, agencies) on which their power to continue fleecing society depends. (IOW, if these are oligarchs, they are incredibly arrogant and blindly stupid to the larger patterns of history.)
The economic rules over the past 30+ years have been made primarily to favor finance. But fundamentally, finance cannot in and of itself create a robust economic system. To maximize profit, what the finance sector needs a lot of people in a whole lot of debt. Which is pretty much what we’ve seen play out over the last 30 years, with the exception of a tech or housing bubble or two.
Unfortunately, finance has been (mostly) morally vacuous in terms of the larger social structures, in terms of environmentally responsible behavior, and in terms of creating rules that favor manufacturing or small-scale productive initiatives that *generate* sustainable economic wealth over a long period. IOW, the policy makers and ‘oligarchs’ know how to control resources, but not how to create them. They’re killing the goose that laid a lot of golden eggs for them; now, they’re going to fight over the carcass.
IIRC, Yves has said that her early work experiences were with a company whose view was ‘long term greedy’. In the subsequent decades, the timelines have shrunk and so has the sense of any social responsibility.**
Finance has a role, and it is useful to a point. But it became too large a share of the economy and of political influence to be economically productive. Primarily, it needs debt and debtors: there are economic, mathematical limits to those two factors and neither generates new sources of real wealth over time.
In short, I don’t see a world of oligarchs managing events: I see a world of people scared shitless about diminishing resources and becoming more desperate to grab while they can. I see a world in which people with the skills to actually create new products and services are weighed down by debt from an increasingly financialized system. At some point – and from what Yves and other commenters report, it may be sooner rather than later – this system cannot function.
We badly need new economic thinking, because Finance Capitalism and the assumption that economic behavior does not need to be socially responsible to the health of the system in which it functions is simply not going to work. IMVHO, we are seeing signs of this today – whether you call it ‘climate change’ or fraud, these very large problems are symptoms of a system that is fundamentally flawed.
It has been interesting over the past six years that I have paid attention to finance to see how few people are able to talk about social responsibility in any credible fashion. I’ve observed that the thing about capitalism that appeals to many people is that it absolves them of any social or moral responsibility for their conduct: they can simplify all decisions into “if it’s good for me, it’s good and that’s all the ‘morality’ that I need to worry about because I don’t have to be responsible to, or for, the systems that sustain me.’ At some point, the cumulative impacts of those attitudes damage the system to a degree that it can no longer function. If we are not there yet, we are getting close.
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** I was darkly amused by Chevrons online ads a year or two ago about how they were donating money or assistance to high school teachers. This from a company that pays its execs more than the annual operating expenses of a large high school in any given year — yet, I’m sure that Chevron views their little bit of generosity to high school teachers as fulfilling their social responsibility. These people have lost all sense of proportion, if that’s the case: millions for them, peanuts for teachers – many of whom are probably weighed down with debt. You’d think that Chevron’s board would have enough brain cells to recognize that these vast disparities will sooner or later have detrimental social, political, and economic impacts but so far I don’t see any sign that they get it. If these are some of the ‘oligarchs’, they’re going to self-destruct from sheer blindness and greed.
Which would be fine by me, if it didn’t threaten to take the rest of us down with them 8^p
Anyway, I don’t think the oligarchs have an f’ing clue how to solve the very big problems in the world today. But to solve those problems, we need new economic thinking. That will be a severe threat to the existing oligarchs. However, small things like ‘Equal Exchange’ products, and biologically safe/ responsible cleaning products, are small steps in the right direction that show it is possible to produce socially responsible products in a capitalist system: however, at present these remain higher-end products primarily supported by the affluent and educated.
I like that about Richard’s NZ shell scammers helping to “externalize” “socially destructive behavior.” Nice way to think about that.
You could be right, but the “political stability” part is the Achilles heel of the current system.
It is simply stealing. 99.9% of all theft is perfectly legal, fraud and thievery sanctioned by the professional class in return for the occasional crumb flicked-off of the Elite’s banquet table.
If any part of the population understood that a mere return to historically average interest rates would result in an implosion of the World Financial System, there would be panic in the streets. The System is Dead, these are the death Throes.
Most reliable measures are at or above their 1929 1987 2000 2007 peaks. The fear at the top must be palpable. They will need a War to escape mob justice, or at least that is how their sick minds will see it.
http://qz.com/212561/america-has-a-new-subprime-problem-cars/
the more things change the more they stay the same…….those who forget history are doomed to repeat……..etcetera, etcetera…..
The Yellowstone supervolcano will blow, and those of us that are left (according to some charts, the blast zone stops at the Cascades) will have real problems to worry about.
Perfect metaphor. This magma pluton dwarfs anything ever conjured by the Maestro of financial WMDs.
Wall $treet skates on moral hazard and creates ever more innovative looting schemes with hyper-leveraged securitizations of subprime GM recall loans and rents on el barrio hovels. Brilliant! What could possibly go wrong? I’ll take a fee to rate these “sh*tty deals” for Goldman’s Muppets as long as I have zero liability.
Some think this is like champagne fizz or effervescent beer bubbles, with a pleasant bit of froth on top. Party time! What amazing short-term memories. This looks to me like the biggest, baddest mother of all Shock Doctrine, blow up the globe bubbles ever blown with trillion$ of free gambling fiat. It has to be designed to fail.
Re: “… a September-October 2008 outcome seems unlikely.”
From what I gather, it seems likely to be worse next (this) time. With practically nothing to stop these guys, behavior is getting more reckless and the extent of debt and risk seems far greater than before. The only thing that could prevent a worse outcome is bringing back Summers, Geithner and Bernanke. Which of course would mean further damage to the rest of us and a greater income divide. The world is more of a ticking timebomb than seven years ago and there seems to be many more red flags and bubbles this time, besides the huge housing bubble.