What happens during the next financial crisis?

Ten years ago, it was a bad surprise for almost everyone when we found ourselves on the eve of a global financial meltdown.

Most business journalists – including myself – failed to see the disaster of 2008 until it was almost upon us. But these days, predicting collapses has become very trendy. With stocks reaching record highs, low unemployment, and a booming economy, it has become increasingly common for journalists to predict that difficult days will come. And not very far ahead. A recent New York Times editorial, "Inviting the Next Financial Crisis," is an example.

But I do not think that the obvious problems of today will cause the crisis of tomorrow. Why? Because the obvious problems do not usually cause crises. You have a crisis when problems combine unpredictably and unpredictably.

In 2008, complex financial instruments that almost no one understood – based on various pools of weak loans – caused huge losses, almost overnight, to such big companies as Bear Stearns, Lehman Brothers and American International Group. These institutions did not understand that their portfolios were toxic until financial sepsis had settled. Worse yet, a series of financial relationships between these and other players, and arrangements to reduce risk, have accelerated it.

However, there is a clear and present danger to the financial system that hardly anyone seems to be discussing in public. In fact, several experts have whispered about it and said they were discussing it behind closed doors but they were not talking about it elsewhere, for fear of becoming the target of a tweetstorm in the presidential election. I will do so, at the risk of being labeled peddler of "false news". I think the biggest risk of financial problems exploding around the world is a crisis. . . Donald Trump.

[Trump’s most enduring — and unbefitting — trait]

No, I'm not talking about Trump's economic and regulatory policies, which people can legitimately disagree with. I'm talking about how Trump behaves.

It's a guy with a minimum of impulse control, someone who invents things on the fly, tweets, publicly removes his subordinates, insults both his opponents and his allies, and comes back so often that no major player in the global financial system could trust him.

From what I saw ten years ago, I am comfortable to tell you that if there is a lack of trust and cooperation between the United States and the other major financial powers, , relatively minor problems could metastasize rather than being cured or at least treated.

Let's look at some of today's financial issues, which I think will not cause a crisis, because they are very obvious.

The first danger is that US interest rates are rising, whether or not Trump manages to intimidate the Federal Reserve into abandoning its rate hike program. The Fed has cut short-term rates that it directly controls to virtually zero a decade ago to boost the economy and boost asset prices, especially equities. It has also made considerable efforts to reduce long-term rates.

Now, short-term and long-term rates are rising. One of the main reasons is the increase in current and future federal budget deficits created by last year's tax bill, which will require massive federal borrowing.

[Another tax break for the ultra-rich? Enough, already!]

Rising interest rates reduce the market value of existing bonds and hurt home prices and other assets. I do not know where the stock market goes – who does it? – but higher interest rates will put downward pressure on the latter.

Here are some other problems:

Housing prices – particularly in the high-income areas and blue areas covered by last year's tax legislation (which limited annual federal deductions for local and property taxes and property taxes to $ 10,000) seem to be degrading. Since home equity is the most important financial asset for most people, you can see why this is a problem. Just as some mortgage lenders seem to reduce the down payment requirements and make riskier loans.

High-risk auto loans are growing rapidly, perhaps because they have done relatively well, compared to subprime mortgages, over the last decade. Apparently, borrowers in financial difficulty realized that their lives could be devastated at a glance if their cars were recovered and unable to get to work, and that lenders would take much longer to repossess of their houses. Therefore, quite rationally, they gave priority to car payments over housing payments. Now, however, people seem to be taking out subprime loans for more than one car, which could reduce the incentive to continue paying for certain vehicles if homeowners' finances collide with the wall.

Student loan debt – a huge, growing and widely recognized problem – is in crisis in the territory of many students and their co-signers. But I do not think it threatens the financial system.

Corporate debt is very high, particularly borrowing by private equity firms buying companies and companies trying to make predatory "investor investors" happy by buying their own shares. And that has an impact. Consider the collapse of Toys R Us, a privately owned private company that could not generate enough profits to cover its redemption debt. Refueling Toys has caused problems for homeowners, who generally borrow a lot to finance shopping centers. And massive layoffs.

Dozens of other retail chains, most of which are in debt (which makes them much harder to compete with Amazon, including CEO, Jeffrey P. Bezos, owner of the Washington Post), are closing stores. This throws thousands of people out of work.

Now, the big one though.

I do not think the global financial system is at risk in the face of the problems we face. However, he could be in danger of what we do not know. Could risk derivatives linked to high-risk auto loans, distressed real estate or even student loans cause the debacle of large institutions? I do not know

Some mistakes of ten years ago are instructive. Subprime mortgages were a pre-crisis problem, but Federal Reserve chief Ben Bernanke, among others, played down the danger because these mortgages were only a relatively small part of our economy. However, there were all kinds of esoteric mortgage securities in the world, and few actors understood them. These esoteric have increased the risks, and institutions such as Lehman Brothers, Merrill Lynch and Bear Stearns have been destroyed.

Then there was the government's disastrous decision to let Lehman go, which he did on September 15, 2008 (now considered the official beginning of the global crisis). The regulators who bailed out Bear Stearns six months earlier were heavily criticized, which I'm sure (but can not prove) influenced the decision to let Lehman croak.

Oops. The failure of Lehman pushed the Reserve Primary's money market fund to "crack" the funds. The fund said it could not buy back $ 1 shares, which means that a portion of the investment triggered a new wave on all money market funds, forcing the Treasury Department to guarantee $ 3.4 trillion, or $ 1 trillion with a "t" invested in these funds.

In addition, the hedge funds of which Lehman was the prime broker did not have access to their assets. This has led other hedge funds to begin withdrawing assets en masse from their leading brokerage accounts at Goldman Sachs and Morgan Stanley. The Fed had to quickly give the two investment banks commercial bank charters to restore confidence by making them eligible for huge Fed loans.

Is there another disaster like Lehman? I do not think so. But I do not pretend to know.

But I fear the Triple T: the threat of toxic asset.

Background In 2008, Treasury Secretary Hank Paulson, Fed Chairman Bernanke, and New York Fed Chief Tim Geithner coordinated with central bankers and government officials. George W. Bush, then an unpopular president of the ducks, did not interfere. Barack Obama did not take office in 2009 either.

Whatever your problems with Bush and Obama, they were serious and acted like adults during the crisis. They allowed Paulson, Bernanke and Geithner to establish rescue rules as they went – preventing a global collapse – without being publicly overtaken by the White House.

(Congress, frustrated by some bailouts, has subsequently reduced the Fed's ability to offer loans to non-banks in "unusual and urgent" circumstances. </ P> <p> I hope the Fed will have found a solution when needed.)

If, for whatever reason, we encounter a serious international financial problem with Trump as president, do you think that someone will take Treasury Secretary Steven Mnuchin or the Fed President (and the tweet Trump) Jerome Powell? Or believe that they have the power to engage the US government to something?

Do you think that Trump, who fought with Europe, Japan and China, could or would want to cooperate with Europeans, Japanese and Chinese? Will he trust Trump to keep his word if something that he, Mnuchin or Powell says or upsets "the base"? I do not think so.

Hopefully, we will never have to know if I'm right. And I hope that in 2028, people will be talking about the 20th anniversary of the 2008 financial crisis and not the 10th anniversary of the 2018 crisis.