This past week saw remembrance of the ten year anniversary of the Lehman Brothers moment that upped the Global Financial Crisis to a whole new level not seen since the Great Depression of the 1930’s. As economists, analysts, policy makers, and investors have all been doing a bit of much-needed soul searching, the questions have come up in the news this past week concerning the source of the next global financial crisis. This is as certain an event as the sun rising tomorrow.
One of the biggest questions on everyone’s mind in this regard is: will it be the European or Chinese banks that become the dire source of the upcoming global financial crisis? In either case, you need to take steps to protect your retirement account by avoiding scams and sidestepping the end of the longest-running bull market in U.S. history. Gold offers insurance and protection during market turbulence. Today is the time to think about gold storage and gold IRA rollover rules and regulations while there is still time.
The Lehman Brothers Fiasco Destroyed Banks Around the U.S., Europe, and the World
The global debt bomb today is a scary reminder of how things blew apart only ten years ago. Today’s total worldwide indebtedness is $247 trillion. In some countries like the U.S. and Japan, this means that the percentage of debt to GDP exceeds 100 percent, as the chart below makes clear:
Ten years ago in 2008, it was the spectacular, unforeseen, and poorly handled collapse of Lehman Brothers that brought down both domestic and international markets and wrecked the world economy. This fourth biggest American investment bank filed for bankruptcy protection back on September 15th of 2008. The resulting bloodbath in U.S. and global markets caused almost $10 trillion of equity market cap to disappear in just the subsequent month.
The Lehman collapse revealed the hidden reality that it (and most other banks around the developed world) had quietly amassed an enormous inventory of toxic mortgage backed securities, the now-dreaded MBS investments. It soon became clear that these assets possessed little practical value as measured against their market prices. The financial weapons of mass destruction that brought down Lehman Brothers and Bear Stearns back then still exist and hide in plain sight even today, sadly.
European Banks And Their Continuing Issues Today
The scary news is that the banks that were nearly destroyed a decade ago have still never fully healed. The resulting damage of that fateful few months still reverberates around the world, especially in many European banks and some Chinese ones as well. The European global powerhouse financial institutions had assumed too much leverage like their American counterparts. Many of them lost crucial access to funding as a result and were forced into the uncomfortable position of having their home governments rescue them in bailouts (and in the case of Cyprus and Greece, with bail-ins).
European Economist Carsten Hesse of Berenberg wrote in an email:
“European banks deleveraged and increased their capital ratios after Lehman, so they are in theory in a safer position than 10 years ago. But in some euro zone countries such as Greece or Italy, non performing loans are still very high, causing headaches, and the profitability of some banks, including in Germany, is still very low.”
It is these non-performing loans that remain among the greatest threats to European bank profitability. Because these toxic loans build up in a large overhanging pile on the balance sheets of banks, lenders are forced to produce greater amounts of profits in order to offset the liabilities.
It has not helped matters that the profitability of European banks has been further pressured thanks to the artificially depressed interest rates that the various governments of the world set up in an effort to revive the shattered world economy over the past decade. Add to this the growing fear surrounding the upcoming Brexit departure of world banking center London from the EU, and you have a perfect storm quietly sneaking up on the still-reeling European banks.
The European Parliament released a report in March that revealed the quantities of such toxic loans. They are quick to grasp hold of any hope that the amounts of these hopelessly delinquent loans have diminished a little over the last few years. They are down from 6.4 percent of all bank portfolios on the continent to 4.2 percent as of September 2017 end. Yet the report reveals the truth in the data if you read it closely:
“However, the current NPL level in the EU is still higher than in other major developed countries.”
In fact a more honest appraisal of the situation in Europe is brought by the Chief Economist and Investment Officer Daniel Lacalle of Tressis Gestion, who warned:
“European banks have been building core capital and strengthening their balance sheets. However, it has not been fast enough, and challenges remain. Non-performing loans in Europe are more than double relative to all loans in the U.S., exposure to sovereign debt, and risky emerging economies remain too high and net income margins are very weak.”
The European authorities try to paper over the issues and claim that thanks to the newly established European Banking Authority, they are capable of managing lenders through the now-routine stress tests that they conduct to be certain the banks are prepared for another crisis. Lacalle disagrees with this assessment with:
“Having said, whilst personally I think regulatory authorities around the world may be in a much stronger position to spot and save individual institutions… the clue to solve a systemic financial crisis is in the name systemic. Have we resolved the problems in the financial system and in the economic system that actually give rise to this and previous crises? I don’t think we have really done that.”
But Where Is The Next Crisis Coming From?
It has been a fascinating ten years in markets around the world. You have just seen the longest bull market in U.S. equity history. This only means we are that much closer to the return of reality to the markets. The problems from the last crisis were not effectively addressed.
CMO’s, CDO’s, and LBO’s did not go away after the previous crisis that came within hours of destroying much if not all of the Western world-backed economy. They are lurking in plain site, and you should protect your portfolio from these dangers of the next Lehman Brothers Moment.
Another big question that everyone wants to know the answer to is: if the crisis will not come from European banks (and it still could), then will it be from the over-leveraged and debt-saddled Chinese? There are a number of analysts who do point to China and the heavily indebted system they oversee. These observers speculate that the next flash point for crisis will come from the Beijing’s banks’, corporations’, and local government debts.
Whatever the Next Crisis Looks Like, You Can Count on Gold to Stand By Your Portfolio
Many analysts agree on one thing. The $247 trillion in global debt will be at some underlying cause of the next global financial crisis. There are also unsustainable and non-realistic stock prices and problems in emerging markets that analysts and market observers tout as possibilities for the pending global crisis. It is not a matter of if there will be another financial meltdown, but only a question of when and how much time do you have left to prepare?
There is no reason to panic. Gold is the lifeline that your investment and retirement portfolios need to survive, outlast, and thrive through the coming global crisis. Now you know why you need a Regal IRA. The logical next step is to figure out what assets go in a Regal IRA.