The banks are in trouble AGAIN, just like 2008
Disclosure: All opinions presented here are purely my own and do not represent my firm or anyone associated with it. This is not a recommendation. Do your own homework and due diligence before investing in anything.
First posted on my personal website (here).
The banks are in deep trouble just like 2008.
They don’t want you to know it. None of the media wants you to know it, but we’re about to go through another crisis that may make 2008 look like a training run.
Why?
Because the stock market is going to collapse.
How?
The massive short squeeze of multiple meme stocks bankrupting hedge funds, family offices and banks around the world.
I’ve been writing about this topic extensively and you can see some of the other articles I’ve written below:
Part 1: Power of the retail investor — Gamestop stock situation explained
Part 2: How Redditors and retail investors could pop the stock market bubble
Part 3: The Next Big Short — AMC and Gamestop
Part 4: The Stock market crash of 2021 simply explained
Currently, we’re in the early stages of the next big short.
How?
Multiple meme stocks including Gamestop and AMC are set for short squeezes that will bankrupt multiple hedge funds and possibly the largest market makers in the world.
If this happens, multiple banks go under.
How?
Banks took on too much risk and gave out too much leverage to hedge funds, family offices and market makers that tried to naked short multiple meme stocks into bankruptcy.
The Internet found out and flipped the script on these funds. Now we’re going to see the largest wealth transfer in the history of the stock market.
Occupy Wall Street 2.0.
If and when this happens, banks will go bankrupt.
The reason is because of their prime brokerage departments.
What is a prime brokerage department?
A prime brokerage department is a bundled group of services provided by investment banks and financial institutions to hedge funds and large investment clients to borrow securities or cash to invest in the stock market. They provide leverage to large investment funds that use this money in the stock market.
The way leverage works is if you have $100 dollars, the bank may give you 3–5x leverage. This means on that $100, you have 300–500 dollars to spend in the market. This is allowed to exist as long as your stocks go up.
However, if your stocks start to drop, you get margin called.
What does this mean?
It means that you need to deposit more cash in your investment account to not go bankrupt. How do you do this? You either raise more money from external parties or sell your other stocks.
I believe we’ve already seen the selling of many stocks since February. Even though the Nasdaq has continued to rise, a lot of favourite stocks of hedge funds have dropped from their highs from February. Tesla, Shopify, Teladoc, biotech stocks and others have all fallen at least 20–30+% since their highs.
I believe this has been done in order to maintain hedge funds to allow them to continue to naked short these meme stocks hoping retail investors will sell.
Retail investors aren’t selling and when these stocks start to rise, hedge funds will get margin called. Once they get margin called, they won’t be able to pay for their shorts.
If they can’t pay for their shorts, the prime brokers are on the hook. If the prime brokers are on the hook for their shorts, it means the banks are on the hook for their shorts.
We’ve already seen what happens when large investment funds get margin called and it’s not good for banks. Archegos, a large family office run by Bill Hwang, got margin called and he lost $20 billion dollars in 2 days. Credit Suisse, one of the banks that gave him so much leverage, lost $5.5B as a result of his margin call.
What happens when multiple large funds go under? Banks are on the hook again, just like 2008.
Do you know why? Greed, one of the 7 deadly sins.
Wall Street is run by greed. Everything is great when everyone is making money so banks lend out more than they should. The prime brokerage departments are one of the most profitable departments in banks so their incentives are set up to take on massive risks. They make hundreds of millions to billions in dollars in fees from these large institutions.
The problem becomes when things turn. Leverage is how people, funds and banks get wiped out. You’re betting on things with money you don’t have.
Never do that.
This issue has been bubbling for 20+ years. Do you know why?
Because Bill Clinton’s government repealed the Glass-Steagall Act.
Quick lesson on the Glass Steagall Act and why repealing it was terrible for the American economy:
The Glass-Steagall Act was a bill signed in 1933 following the Great Depression, which separated investment and commercial banks. The difference between commercial banks and investment banks is that commercial banks typically deal with deposits and loans for companies and individuals while investment banks purchase stocks and bonds for companies while also issuing IPOs.
Basically investment banks buy and sell securities, while commercial banks do not.
The main points of the law were to separate commercial and investment banks. It was a separation of those who take risks from those who do not.
For several generations, this law continued until the late 1990s when Bill Clinton signed into law the Gramm-Leach-Billey Act. It removed part of the Glass-Steagall Act that allowed the separation of commercial and investment banks. Thus commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate.
Many, including President Obama and Joseph Stiglitz, a nobel-prize winning economist, argued that this bill created the 2007 subprime mortgage crisis because of deregulation. It created companies that were too big and too intertwined to fail. Following the 07–08 crisis, legislators tried to reinstate the Glass-Steagall provisions but were unsuccessful.
My take is Wall Street spent billions of dollars to lobby politicians and governments to continue to allow the banking industry to regulate itself.
Newsflash: WALL STREET CANNOT REGULATE ITSELF.
It’s like imagining the world was one large prison and some of the inmates were bankers. Imagine they paid off the wardens, who are the governments, to make sure they could run the prison exactly how they wanted to. These prisoners also control the media so they gaslight the rest of the prisoners into believing things that they want them to believe. It’s modern-day propaganda.
That’s what’s been happening for generations
Now we’re going to go through a massive economic crisis that may rival the 1930s because banks took way too much risk and tried to make themselves too big to fail. Once they go under, they will go to Congress and the World Bank for bailouts.
You can bet if that happens there will be massive civil unrest around the world. We’re already seeing civil unrest in Lebanon, South Africa, Cuba, France and Haiti. When inequality between the haves and have nots gets this high, people will rebel. Revolutions will happen.
So what can you do?
Get educated. Understand how the banking system works. Don’t be gaslighted by the media into thinking that retail investors caused this crisis, because you best believe the media will blame individuals for this.
Retail investors did not cause this crisis. Banks and hedge funds did by illegally naked shorting companies with stocks they did not own. The Internet found out and beat them at their own game.
The banks will spend billions of dollars lobbying the government to get bailouts again and will try to explain how the world will fail without them.
It won’t. Yes, it will be bad for some time as we sort out the fallout of this crisis, but without any punishment, these bankers will do this again.
We need governments to enact laws that serve the people, not Wall Street. These guys have been stealing billions to trillions of dollars from world economies through illegal activity for too long. The SEC, a regulatory body that’s run by Wall Street itself, doesn’t have the power to punish these institutions. Fining these entities millions of dollars when they’re stealing billions of dollars is nothing for them. (side note — Lucy Komisar, an independent journalist who has been covering Wall Street for years, wrote a great piece on the corruption of the SEC).
The only people who can regulate them are governments and because Wall Street controls many politicians through lobbying and donations, laws never get passed.
Many thought after 2008 happened, bankers would be punished and the rules would be changed.
Nothing happened and this time it got worse.
As a functioning society, we cannot allow bankers not to suffer when they bring down whole economies.
We the people have the power to stand up to these institutions, demand our governments take action and make sure they’re punished for their wrongdoings.
Our collective future depends on it.
Keep Going, You’re Doing Great
-AK
