Concurrent pandemics

ON DECK? A BANKING (COLLAPSE) "PANDEMIC?"

Well, this is a bracing read:

The Looming Bank Collapse
The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.
Frank Partnoy

After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.

You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.

The financial crisis of 2008 was about home mortgages. Hundreds of billions of dollars in loans to home buyers were repackaged into securities called collateralized debt obligations, known as CDOs. In theory, CDOs were intended to shift risk away from banks, which lend money to home buyers. In practice, the same banks that issued home loans also bet heavily on CDOs, often using complex techniques hidden from investors and regulators. When the housing market took a hit, these banks were doubly affected. In late 2007, banks began disclosing tens of billions of dollars of subprime-CDO losses. The next year, Lehman Brothers went under, taking the economy with it…

…reforms were well intentioned, but, as we’ll see, they haven’t kept the banks from falling back into old, bad habits. After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs…

About a 27 minute read. Highly recommended. (Sadly) vindicates my little 2008 pissant view-from-the-subprime-trenches rant "Tranche Warfare."

I've been mulling writing this post for a long time, watching with increasing -- but hardly surprised -- dismay all year as the economic tailspin has accelerated, its increasingly debilitating effects impacting the lives of more and more ordinary citizens worldwide who had no part in its creation. Now, the Bernie Madoff Ponzi scheme scandal seems as though it might represent the final nail in the coffin of financial system trust.

We seem to never learn...

I need a margarita.

ALSO ON DECK

What does all the foregoing portend for the future of U.S. democracy?

PDF

INTRODUCTION

Founded nearly 250 years ago, the United States of America is the world’s oldest constitutional democracy. Its infancy, under the Articles of Confederation, was turbulent. Its early prospects, at the Constitutional Convention in Philadelphia, were very much uncertain. At the Convention, Benjamin Franklin—catalyst of the Revolution, leading citizen of the republic, enslaver turned abolitionist—wondered as he observed the conflicts, compromises, and contradictions of the process: was the young nation’s sun rising or setting? With the signing of the Constitution, he concluded, the sun was rising.

Today, the question of rise or fall is more pertinent than ever. In this age of globalization, centralized power, economic inequality, deep demographic shifts, political polarization, pandemics and climate change, and radical disruption in the media and information environments, we face these converging trends in a constitutional democracy that feels to many increasingly unresponsive, nonadaptive, and even antiquated.
   
Consider the data. The public’s approval rate for Congress—our national legislature and the first branch of government established in the Constitution, charged with articulating the will of the people—hit a historic low of 9 percent in 2013. Now rates hover around a still-meager 25 percent. Income and wealth inequality levels have exceeded those on the eve of the Great Depression. Social mobility has stagnated. Inequities continue to track lines of race, gender, and ethnicity, revealing deep structural unfairness in our society. A surge in white nationalism, anti-Semitism, and anti- immigrant vitriol has flooded our politics with sentiments corrosive to the ethic of a democratic society, while people of color continue to confront barriers to opportunity and participation. At all levels of our system, voter turnout remains low in comparison to other advanced democracies. Trust in institutions has collapsed while an online culture of gleeful, nihilistic cynicism thrives. Fewer than one-third of Millennials consider it essential to live in a democracy. Partisan rancor has not reached the intensity of Civil War–era America—but it is nonetheless very high. When Americans are asked what unites us across our differences, the increasingly common answer is nothing...

Below, this seems a good place to start, given my pedantic Jones for clear and effective definitions:

Our conversations about democratic civic life are now so polarized that we must pause to define our central terms. In the twenty-first century, democracy refers to a political system in which legislative and chief executive decision-makers are elected by majority or plurality rule by eligible voters, with a presumption that the franchise approaches universal adult suffrage among legal citizens and that mechanisms are in place to protect ideological, religious, ethnic, and other demographic minorities. This definition refers to representative rather than direct democracy, reflecting that all existing democratic societies are representative. While we use both constitutional democracy and democracy in this report, we recognize these as synonyms to other terms in common usage in the United States, including “republic” and “democratic republic”...

The bulk of the table of contents:

Within the six strategic categories are 31 specific proposed tactical initiatives, a number of which seem to me to be a heavy lift—all reasonably warranted nonetheless. Make up your own minds.

apropos, see my prior

"ocracies," "archies," and "isms"

UPDATE

Obtuse, or just cut-to-the-chase succinct?

Think about it. Goes well beyond "race." Shouldn't exactly come as "news." Uhhh... Aristotle, anyone?

I totally include my own obligation in the inferential admonition.

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More to come...