On 11-01-2025 20:17, Alan Grayson wrote:
What isn't being discussed is the likely banking crisis as a result of
these fires. With entire neighhoods burning out of existence, I
wouldn't be surprised if there's a Trillion+ dollars of bad debt being
created, as homeowners default on their mortgages. The banks will
demand payments, but overwhelmingly they won't be coming. And, of
course, private insurers will opt out of insuring for fire -- it
started before the current fires -- and the government will have to be
the insurer of last resort to keep the mortgage busines continuing to
exist, since banks will refuse to write mortgages for uninsured homes.
The saving grace is that we can depend on our brilliant new president
to meet these challeges with wisdom (what he's known for) and plenty
of gusto. AG
--
I won't dismiss this becoming a problem, but as Brent and John have
said, due to insurance and the total amount of damage not being very
large, it won't be the sole course, more like the straw that broke the
camel's back. So, the banking sector is already dealing with a large
amount of unrealized losses. And recently the interest rate is going up,
with ten-year yield approaching 5%, which means that the value of the
bonds held by banks has been going down again. And corporate defaults
are going up rapidly.
If the fires cause problems like insurance companies going bust, the
banks are ultimately on the hook for that. This may then force the banks
to sell assets, and then the fact that they have very large unrealized
losses will matter. So, the banks are wrong-footed despite reasonable
well capitalized. And this is not just because of their huge unrealized
losses but also because the bank reserves are for a large part deployed
to pump fundamentally worthless financial assets like Bitcoin. Bitcoin's
fundamental worth is zero and yet the market cap of Bitcoin is now $1.9
trillion.
Bank reserves end up providing for the loans to financial institutions
for the leverage they use to trade the financial markets:
https://www.youtube.com/watch?v=cQFQg-9b9EQ&t=1911s
If the stock market were to have aq big correction, perhaps due to
investors dumping stocks of insurance companies and banks due to the
fires, that can trigger an avalanche of margin calls where banks demand
that investors with leveraged positions to increase their collateral.
But they then need to sell other assets to get to the required
collateral, or they could choose to close their position that's at a
loss. Either way, this leads to selling of assets causing the markets
descent to accelerate, leading to yet more margin calls.
And the market going down rapidly can then trigger other problems due to
certain financial assets not being well tested:
https://www.youtube.com/watch?v=Il_1w5Kvt_A&t=219s
Saibal
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