Englund

Lightly regulated new financial instruments can have serious consequences if lawmakers and regulators aren’t careful. Genius Act it institutionalized cryptocurrencies in the U.S. by creating the first comprehensive regulations for stablecoins.  When Washington lets new financial products on the scene, they aren’t adequately regulated and quickly gain an advantage over existing financial instruments that are more heavily policed. Market convulsions, economic downturns and bank failures follow.  I watched it happen when money-market funds burst into the market in the 1980s, bringing banks to the brink of insolvency. Stablecoins could do the same thing. While the government had long ago capped the interest banks could pay depositors at 5.25%, money-market funds could offer whatever the market demanded.  When interest rates and inflation hit double digits, depositors rightfully shunned banks to earn 12% in a money-market fund. While the Genius Act prohibits stablecoin issuers...

 Bill Isaac, who was head of FDIC at time of savings and loan turmoil and managed the collapse of what was then the seventh-largest bank in the country, Continental Illinois, said that priority was misguided. “I don’t think it is right to sell a failed bank to the largest bank in the country just because it paid the highest price,” he said. Based on his experiences in the 1980s S&L crisis, when rising interest rates contributed to the failure of more than 3,000 banks and savings and loans associations including eight of the 10 largest banks in Texas, Isaac said he believed there was more pain to come. “We are kidding ourselves if we think there are only four problem banks in the country,”  FT 4 May 2023 https://www.ft.com/content/1f2edfeb-b8d9-40a4-9496-d51edf07dd27 During the late 1980s, nearly a third of the nation’s savings and loan associations failed, ending with a taxpayer bailout — in 2021 terms — of about $265 billion. https://englundmacro.blogspot.com/2021/04/fina...

 developers and builders. After 1986, 747 institutions with assets of more than $394 billion (about $1 trillion in today’s dollars) collapsed into the federal Resolution Trust Corp.  When the S&Ls failed, community-based lending and much of the local home-building industry vanished. The fallout was ultimately felt up and down Main Street during the recession of 1990-91.  Wall Street was the big winner, filling the void left by the S&Ls with commercial mortgage-backed securities, or CMBS. Today, most commercial and multifamily real-estate funding is done by CMBS loans. All major financial institutions—including banks, insurance companies and pension funds—participate heavily in CMBS markets. Consequently, we are all in this together.  When the CMBS market collapsed in 2008, it plunged the global economy into the Great Recession. Taxpayers funded huge bailouts. Without tax incentives, real estate can’t compete with other investments for essential capital. ...

During the late 1980s, nearly a third of the nation’s savings and loan associations failed, ending with a taxpayer bailout — in 2021 terms — of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. — Long-Term Capital Management (LTCM).  Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system.  Once again, big banks were deemed too big to fail and taxpayers came to the rescue. MarketWatch 5 April 2021 https://www.marketwatch.com/story/financial-crises-happen-about-every-10-years-which-makes-the-archegos-meltdown-unnerving-11617634942 The Savings and Loans Bailout https://www.internetional.se/sandl.htm Save the last dance for me WAITING FOR THE LAST DANCE https://englundmacro.blogspot.com/2021/03/save-last-dance-for-me.html