Inside 2008 the world experienced the worst financial crisis of recent times 80 years. Makes sense after 15 years Wall Street and the main street remembers him and the fears return. is he Silicon Valley Bank The canary in the mine of another financial crisis? The phenomenon of finance is still a great mystery to economists, and no one can definitively answer this question.
Inside 2008 the problem was high indebtedness mixed with asset inflation. When the real estate bubble burst, investors took refuge in the real estate market for fear of not getting their money back. United States public debt, Germany And Japan. This caused difficulties in debt rollover, had to sell assets and lowered their prices. Deflation of assets triggered credit crunch, collapse of investment, GDP and employment.
This World debt is much higher today than it was in 2008especially developing countries and especially Chinese. China stopped running large current account surpluses and significantly increased both its government and corporate debt. In the United States, companies also currently have more debt than they did in 2007. debts financed at close to 0%. This inflation seemed to have disappeared and central banks were given priority growth and from financial stability to price stability.
This Pandemic caused serious deterioration. global supply and production chains and inflation are back. Central banks were forced raise interest rates already reduce their balance, suspension of debt purchases and non-renewal of maturities. Last year, risk premiums for both corporate bonds and public debt of highly indebted countries remained at pre-pandemic levels. However, bankruptcy Silicon Valley Bank It caused instability in global financial markets not seen since the 2008 crisis.
technology bubble
Increase in interest rates fed drilled a hole technology bubble and it makes sense that a California bank would be the hardest hit. The problem is, it was also the country’s bank. private equity international and many crypto companies. A few regional banks in the US are experiencing serious declines in the stock market and large establishments in Europe. Credit Suisse anyone German bank They also record a heavy penalty.
bankruptcy Silicon Valley Bank by strong credit growth and the overconcentration of credit in the technological bubble. However, the market leaked the rumor that the reason for its bankruptcy was: massive purchase of public debt at very low interest rates with capital losses. Banks with a high debt-to-equity ratio face the stress of valuing their portfolios at market prices and aim to short-sell their shares in the stock market if they have eaten up capital.
tighter regulation
This difference from 2007 is this bank arrangement is more strict and requires more capital and better quality. And central banks already know what it is 2008 and they have more tools to ensure financial stability. But fear is free and unpredictable and forces us to be cautious. The ECB meets this Thursday and announced a rate hike. But in the last few days, the rates on the German government’s one-year Treasury bills have dropped by almost a percentage point on the expectation that the European Central Bank will have to not only raise interest rates but lower them in the coming months.
If the ECB wants to contribute to a message of calm this Thursday, keep interest rates and wait and see. If financial stability returns to the market next month and inflation does not fall, they may continue to increase. However, raising rates where investors are discounting will cause more confusion and greater financial instability. The Fed should do the same at its next meeting.
Spain is one of the few countries in the world. Unlevered since 2007. This business and home debt Since then, his disposable income has dropped by nearly 30 percentage points. In the previous crisis, Spanish banks gave more loans than deposits and they needed to issue mortgage-backed bonds in the markets to finance themselves. When the subprime crisis broke out in the US and capital markets collapsed, Spanish banks stopped issuing and were forced to cut loans they could no longer finance.
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Now the Spanish bank 200,000 million more deposits than the loan this is a protection threshold so that instability in the markets does not affect credit, investment and employment. Now the problem is Public debt which is almost triple more than 2007. For now, investors have largely bought Spanish bonds in the past week. 10-year bond fell 50 basis points to 3.25% The risk premium with Germany is close to 10 basis points. The government should announce the abolition of the extraordinary tax on Spanish banks and, above all, signal a clear and strong budget consolidation in the stabilization program it will send to Brussels in April.
As we learned in 2010, when investors lose their trust, it takes blood, sweat and tears to regain their trust.