May 7, 2019: Experience is Powerless, High and Risin', No Good Will Come

“How high's the water, mama?

Two feet high and risin'
How high's the water, papa?
She said it's two feet high and risin'”
            ----Johnny Cash Two Feet High and Risin'

The will to ignorance commands, like an ancient proverb, The Generation of Swine. No lessons are drawn from experience as the idiotlogical imperative stands astride the political landscape.

Jeanna Smialek, writing in the technology/finance section of The New York Times, reported recently that yet another debt crisis is developing.

“Companies with large amounts of debt are borrowing more money at a breakneck pace, prompting the Federal Reserve to flag the trend as one potential risk in the financial system.

“Loans to companies with large amounts of outstanding debt—known as leveraged lending—grew by 20 percent in 2018, to $1.1 trillion, according to the Fed's twice-annual Financial Stability Report. The share of new, large loans going to comparatively risky borrowers now exceeds peak levels reached previously in 2007 and 2014.

“Defaults on these loans remain low, but the Fed warned that could change if the economy faltered.” (1)

The Fed warns that the nature of this debt could act as a serious brake to the economy in the next recession. But there is more to it than that. Smialek points out that “the loans are either held by mutual funds, which pool money from many different investors, or are grouped together and used to back securities called collateralized loan obligations. Those are sold to banks, mutual funds and other investors—with asset managers, insurance companies and hedge funds claiming the riskiest slices” (2).

The Fed maintains that the loans are “different” from the mortgage-backed boom of the 2008 financial crisis, but “(S)till,” writes Smialek, “the central bank is not sounding especially confident about the fallout should an economic hiccup ripple through the leveraged lending sector”. (3)

Nor should it be, for the hand of the Boomers—The Generation of Swine—remains about the throat of the body politic. Accordingly, commercial banks and insurance companies which formerly were forbidden under the Glass-Steagall Act, the New Deal Era firewall between commercial banks and insurance companies and Wall Street speculations, now hold a large portion of the most risk-prone portfolio. This means that the failure to restore Glass-Steagall means that with the next debt-driven recession we once again have not simply an economic downturn but a full-blown financial crisis.

In the meantime the quintessential Boomer, already running trillion dollar deficits during time of prosperity, threatens a 25% tariff on America's banker. Imagine if the Chinese stop buying Treasury Notes in retaliation. Interest rates go up as does unemployment, the economy slows and this whole house of cards comes tumbling down about our heads.

When experience is powerless to instruct, no good will come of it.

“An Br'er Putin, he jus' laugh and laugh”

Impeach and Imprison.

________________

1. Smialek, Jeanna. “Leveraged Loans Pass Peak 2007 Crisis Level” The New York Times. Tuesday, May 7, 2019. Page B3
2. Ibid
3. Ibid