Offbeat: 10 years after Lehman, is another crisis brewing? - PressFrom - US
  •   
  •   
  •   

Offbeat 10 years after Lehman, is another crisis brewing?

18:15  14 september  2018
18:15  14 september  2018 Source:   cbsnews.com

It was a gut-wrenching trade, but investors who bought the day before Lehman failed are up 130%

  It was a gut-wrenching trade, but investors who bought the day before Lehman failed are up 130% Mike Santoli says buying into the teeth of the crisis is a testament to the power of time to heal portfolios — and the virtues of adding exposure any time the market is down 20 percent.Before Lehman Brothers collapsed, before AIG buckled, before the financial system fully broke down and was bailed out, stocks were already in a bear market.

So 10 years after the collapse of Lehman Brothers, consumers are in better shape regarding their debt. And although current policy suggests further near-term improvement, it comes at a price: An increasing the risk that federal debt could precipitate a new crisis . Tendayi Kapfidze is chief

The crisis also shook up the life of Eric Lipps, a U.S. public sector worker, who appeared in another Alistair Darling, who was Britain’s finance minister 10 years ago, recalled how his warnings of a looming disaster for the economy, made shortly before the Lehman crash, had generated howls of protest

Ten years ago, the collapse of Lehman Brothers signaled that the U.S. was hurtling toward a financial crisis. In the years that followed, consumers faced difficulty managing debt as the economy contracted, unemployment accelerated and incomes stagnated. The Federal Reserve enacted extraordinary monetary policy to stem the decline, lowering interest rates to near zero to ease the burden of debt and buying securities to support the credit markets.

These actions, along with initiatives from the Department of the Treasury, helped borrowers and lenders weather the Great Recession. Treasury, with other regulators, created programs to assist borrowers with their mortgage debt, including homeowners who found themselves "underwater" -- owing more on their mortgage than their homes were worth -- as home prices fell. Congress crafted more stringent capital rules to shore up banks.

Billionaire Ray Dalio: We are in the 7th inning of the current economic cycle

  Billionaire Ray Dalio: We are in the 7th inning of the current economic cycle Billionaire Ray Dalio: We are in the 7th inning of the current economic cycle|| 105443620Dalio appeared on "Squawk Box," during the 10th anniversary week of the 2008 financial crisis.

But the idea that a financial crisis on the scale of a decade ago could not happen again is far fetched, and not a little naive. In fact, many of the roots of the blow-up 10 years ago are still alive and well today. Familiar warning signs may flash, but what triggers one crisis may not trigger another .

Ten years after its near-death experience, capitalism is back to its old ways. Bailouts for the few and austerity for the many have caused global debt to rise 40 Keynes taught these lessons after the Great Depression. To prevent another crisis , bring back the monetary theory and policies of Keynes.

So where are we 10 years later?

Consumer debt has increased to levels higher than those prior to the crisis. This is offset by an increase in personal income, though such gains have been sluggish by historic standards.

U.S. consumers have a lower debt ratio. Americans have improved their financial condition as debt levels fell to 80 percent of GDP from a peak of 99 percent at the start of the crisis in 2008.

Delinquency rates are down. From a high of 10 percent of mortgages in 2010, now just 4.36 percent of mortgages are delinquent. Credit card delinquencies are down to 2.47 percent from 6.77 percent in 2009. The one area of concern is subprime auto loan delinquencies, which are now higher than before the crisis.

The debt service ratio is down. The portion of income borrowers use to service debt, is now 10.21 percent, down from a high of 13.22 percent in 2007. However, this is up from a low of 9.89 percent in 2012 as consumers have added some debt since then.

JPMorgan predicts the next financial crisis will strike in 2020

  JPMorgan predicts the next financial crisis will strike in 2020 How bad will the next crisis be? JPMorgan Chase & Co. has an idea.(Bloomberg) -- How bad will the next crisis be? JPMorgan Chase & Co. has an idea.

Related: 10 years after Lehman , Mark Carney says another crisis could happen. Add to all of this an exuberant market and it again brings big risks, from rising corporate debt to cyber threats that can cripple whole companies in an instant. In combination with weaker tools to address financial failures

Much better, but far from being problem-free —most analysts describe the European banking system as "deleveraged and in a safer position" 10 years after the collapse of Lehman Brothers and the subsequent start of the global financial crisis .

Consumers are set to further improve, or at least sustain, their favorable financial condition because of the recently enacted Tax Cut and Jobs Act. Although most of the benefits will float to the higher-income brackets, there should be some improvement in aggregate consumer finances.

However, those tax breaks come with a cost: a deteriorating fiscal position for the U.S. government. The Congressional Budget Office's long-term budget outlook, released in June 2018, reveals an unprecedented accumulation of federal debt.

Path to $100 trillion: Under the new baseline incorporating recent changes in law, the national debt reaches $99 trillion in 2048 -- equivalent to 152 percent of GDP.Trillion-dollar deficits: The federal budget deficit is expected to break through a trillion dollars in 2020 and never look back, reaching $2 trillion in 2032 and $6 trillion in 2048.

Botching the Great Recession

  Botching the Great Recession Why the slump went on so much longer than it should have.It has been ten years since the failure of Lehman sent the global financial system into freefall. Why is this date different from any other date? No particular reason. But round-number anniversaries do have the virtue of giving people a reason to look back at experience, and maybe even learn from it.

After the crisis , some of the firm's customers left the market. Now Fukasawa thinks Japan's economy is gradually recovering lost ground. Hikaru Aizawa, poses for a photograph at one of his offices in Tokyo. " After the Lehman crash, the first thing people did was to stop spending money in the red-light

But the idea that a financial crisis on the scale of a decade ago could not happen again is far fetched, and not a little naive. In fact, many of the roots of the blow-up 10 years ago are still alive and well today. Familiar warning signs may flash, but what triggers one crisis may not trigger another .

These projections indicate that federal budgets will be under significant pressure. Underlying these projections is the assumption of continued favorable interest rates, and notably, no recessions are modeled in the projection period. Adverse real-world events could result in poorer fiscal outcomes.

This creates risks, and not only for the government -- consumers could confront financial challenges as a result, too.

Consumers are likely to be hit with higher taxes in the future as the government faces up to its fiscal responsibilities and seeks more revenue. Plus, under the new tax law, the sunset portions scheduled in 2026 mostly affect individual taxpayers, not corporations. And higher deficits and federal debt levels could lead to rising rates on government debt, which would raise the rates consumers pay on their borrowing.

Both these risks would reduce consumers' ability to manage their debt.

So 10 years after the collapse of Lehman Brothers, consumers are in better shape regarding their debt. And although current policy suggests further near-term improvement, it comes at a price: An increasing the risk that federal debt could precipitate a new crisis.

Tendayi Kapfidze is LendingTree's chief economist. He oversees the online lending exchange's analysis of the U.S. economy with a focus on housing and mortgage market trends.

The 'Great Bull' market is 'dead,' and here's what's next, Bank of America Merrill Lynch says .
The "Great Bull" market that came after the financial crisis is dead due to slowing economic growth, rising interest rates and too much debt, according to a Bank of America Merrill Lynch analysis. require(["medianetNativeAdOnArticle"], function (medianetNativeAdOnArticle) { medianetNativeAdOnArticle.

—   Share news in the SOC. Networks

Topical videos:

This is interesting!