Alternative Visions - Is Another Financial Crisis Imminent—Debating Baker & the New York Times - 08.24.18

Summary: Dr. Rasmus joins the debate between progressive economist, Dean Baker, and his critique of NY Times columnist Cohan, on whether the US bond market is on the cusp of a ‘2007-like Mortgage’ bust. Rasmus agrees with Baker that bond debt magnitudes are not alone the issue. What matters as well is the ability to finance the debt (i.e. pay the principal and interest as it comes due). The level of debt by itself is not the issue. The ability to service it via cash flow and other terms and conditions involved in repayment are the key. Rasmus disagrees with Baker, however, with his narrow focus on non-financial corporate bond debt only—a small piece of the total corporate debt escalation since 2008—and Baker’s narrow view of the 2008-09 crash as a subprime mortgage crisis. It was a broader financial derivatives driven crisis primarily, set off by the subprimes. Rasmus provides a historical review of the crisis from Bear Stearns collapse through the Lehman brothers, AIG, and 2009 Fed bailout of the banks. Shady self-serving deals by JP Chase and Goldman Sachs also played a key role, he argues. Rasmus argues that Baker doesn’t understand the difference between a liquidity crisis and an insolvency crisis, and has no account of how capitalist financial systems are prone to contagion effects more than ever today. The show concludes with a brief update on Turkey and EMEs contagion, the central banks meeting at Jackson Hole, WY this week, and the farce that was this week’s US-China trade discussions.