Back in 2008, financial institutions took “foolish risks and nearly blew up the entire US economy,” Fox News commentator Tucker Carlson said Monday during his ‘Tucker Carlson Tonight’ show. Executives at these banks were not only spared of wrongdoing, many received large bonuses and were not impacted.
Essentially, Wall Street set a new standard: when things are going well, the bankers got rich. But when things are not well, the government “would swoop in to save them,” he said. Since the Great Financial Crisis in 2008, anyone paying attention to the latest financial headlines would see “things went very, very well.”
‘American economy was distorted’
What supported the economy the most since 2008 was low interest rates, Carlson argued. Low rates “make a bull market inevitable.” In fact, low rates translate to higher valuations for companies. Carlson said:
For 13 years, interest rates remained near zero. In retrospect, now that it’s ended, this was crazy behavior. These were emergency measures declared by the Federal Reserve after 2008, but they never ended. And because they never ended for 13 years, the American economy was distorted beyond recognition in ways too numerous to count. Venture capital and private equity exploded, and so did cryptocurrency, so did asset prices, particularly real estate.
The problem with zero rates
Low interest rates also translate to low returns. Want a return that’s better than close to zero? Well, companies need to “make very risky bets.” And that’s what happened. Banks started buying long-term Treasury bonds “as a surrogate for cash,” even though bonds are indeed not cash.
So when troubled banks found themselves holding long-term bonds that lost value as interest rates rise, the banks “began to fail” as clients rush to withdraw their cash under the impression there is limited time to do so.
And this level of panic “could quickly conceivably become a catastrophe,” Carlson said. This was evident in recent market activity when Charles Schwab Corporation Common Stock (NYSE: SCHW) were halted after losing one-quarter of its entire value.
Where are the regulators?
President Joe Biden attempted to reassure the American public the “banking system is safe” and that “deposits will be there when you need them.” While this sounds great, Carlson notes Biden and the government failed to offer any further details.
You’re going to spend 5,000 words trying to understand, but in a really simple way that’s easy to understand. Their liabilities were bigger than their assets. Very simple. How did nobody notice that, the people were paid to notice it? Well, Joe Biden, unfortunately answered none of those questions. He just ran for the door, Carlson said.
The post Tucker Carlson on why big banks are collapsing: ‘the American economy was distorted beyond recognition’ appeared first on Invezz.
