Next Big Bailout: 5 Big Banks Threaten Chain Reaction says IMF

Written By: The WealthCycles Staff

Is the global economy on the cusp of another super-bank meltdown that would pull the world down in a domino-chain crash similar to—or worse than—2008? According to the International Monetary Fund, not only does the risk exist, it could be triggered by the collapse of the same genus of exotic derivatives that took us down last time.

“The global derivatives markets in the post Lehman period… are unstable and they can bring about catastrophic failure,” according to a new IMF paper. The author summarizes why the derivatives market still has the entire system a breath away from yet another crisis:

Quite simply, a threat of failure to any of the systemically important financial institutions (SIFIs) is an immediate threat to the others.
The network topology where the very high percentage of exposures is concentrated among a few highly interconnected banks [JP Morgan, Bank of America] implies that they will stand and fall together....
Structurally, as will be seen, the interconnected hubs often suffer self-annihilation and thereby [not] spread[ing] contagion to the extremities—a matter of considerable significance [when considering] saving a species from epidemics.

What should immediately be noticed here is that the International Monetary Fund (IMF) author considers the “self-annihilation” of the

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testiomials Bailing out failed banks is socialization of losses, not capitalism. Under capitalism the remedy for failed banks is bankruptcy, and other lenders and other institutions step in to take the place of the failed institutions.”

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