Anyone with a bit of a brain foresaw this. There were ever only two options going forward out of the period 2008-2023- nominal interest rates remain crushed down between minus 1%-plus 3% across the government/corporate range forever, or inflation eventually forces nominal interest rates back into a more normal historical range of plus 3% to plus 8%. The central banks should have been normalizing from 2011 forward, but, instead pressed down hard for 15 years. In those 15 years, two big things happened, governments spent like even more drunken sailors, and corporations turned massive amounts of equity into debt. All that debt issued/reissued over that 15 years is now on the balance sheets of basically every financial institution, and all of it going to face massive mark-to-market losses, even if you don't have to mark to market.
Aside from another wonderful article about the dilemmas facing so many banks and the beautiful insights as to what these challenges are I ask the question: why isn't Joseph Politano sitting on the FMOC advisory board?
Love the visuals Joseph!
Anyone with a bit of a brain foresaw this. There were ever only two options going forward out of the period 2008-2023- nominal interest rates remain crushed down between minus 1%-plus 3% across the government/corporate range forever, or inflation eventually forces nominal interest rates back into a more normal historical range of plus 3% to plus 8%. The central banks should have been normalizing from 2011 forward, but, instead pressed down hard for 15 years. In those 15 years, two big things happened, governments spent like even more drunken sailors, and corporations turned massive amounts of equity into debt. All that debt issued/reissued over that 15 years is now on the balance sheets of basically every financial institution, and all of it going to face massive mark-to-market losses, even if you don't have to mark to market.
Fantastic post.
Banks will get par back on their bond portfolios. Need enough capital to see the maturity payback!
Most depositors should be indifferent if their bank fails.
IRR / ALM management is banking 101. Those that don’t know this deserve failure.
Banks will earn less until/if/when curve normalizes. Again, need enough capital to wait for this!
Aside from another wonderful article about the dilemmas facing so many banks and the beautiful insights as to what these challenges are I ask the question: why isn't Joseph Politano sitting on the FMOC advisory board?