moment of truth – The world economic situation is currently very degraded. Double-digit inflation in the euro zone, return of war on the old continent, supply chain damaged by the covid crisis and Chinese confinements in particular… The equity and crypto markets marked time at the end of 2021 and are in free fall from. A critical situation, perhaps even at a systemic level. Various financial institutions are in a delicate situation and are resurrecting the demons of 2008 and the subprime crisis.
Too big to fail act 2?
In September 2008, following the subprime crisis (brought about by harmful banking practices) Lehman Brothers goes bankrupt and drags the global financial markets down with it. As one of the largest American banks, Lehman Brothers shatters the adage ” too big to fail (too important to fail). Competing banks (Bank of America, JP Morgan), for a time expected to intervene and stem the bankruptcyfinally help the bank Bear Stearns, too, on one’s last legs.
For several days, various signals, amplified by insistent rumours, suggest that the very famous Swiss credit could currently be in the same situation as Lehman Brothers, almost fifteen years ago. These banks are identified as bearing a systemic risk if they were to fail. They are so capitalized, connected and so involved in the four corners of the world that the failure of one of them could have global repercussions.
In 2008, when the financial crisis spread to the rest of the planet by ricochets and effects of communicating vessels, foreign establishments also had to go out of business. Because of irresponsible management some bankers (understatement) who thought they were too strong to fall.
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Several historically worrying signals for Credit Suisse
The action of the famous Swiss bank has never returned to the heights it reached between April and May 2007. At its all-time high, it cost $77. It is now worth only $3.81 (last quote at the close of last week), and at $3.69 in “pre-market”. That is to say a vertiginous drop of 95% since 2007. The stock has also lost 50% of its value since the beginning of the year 2022.
With the internet and the uninterrupted demand for trading, some “ brokers offer traders the opportunity to place orders during the “pre-market”, before the official opening of the stock market. The opening of Wall Street today at 3:30 p.m. French time should be carefully scrutinized. It could give the trend for the next few weeks, even months and years.
The entire equity market is on a technical support not to be lost. But the rumors about the probable insolvency of Credit Suisse could cause global markets to plunge and end up triggering a recession that has been taunting us for several weeks.
But we know very well that if Credit Suisse were in a delicate position, it would not be announced just before the opening of a crucial stock market session… Quickly, several Internet users note that in his time, Bear Stearns held the same public position, “a few minutes” before the fall of the empire.
It doesn’t imply a similar fate, but the parallel is still worth mentioning. Among the concrete signs that attract the attention of market participants, the ” credit default swap (CDS). It is basically insurance against a potential default. This “insurance against bankruptcy” has just reached the 2008 historical level.
This stock market week is likely to be decisive for the future of the global economy. A default by a major financial player (Credit Suisse and other names circulating) could require intervention by central banks, as in 2009. The Bank of England intervened last week to avoid un collapse of British pension funds. Short-term policy to stop the bleeding or real pivot in the monetary policy of central bankers? Response in the coming days.
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