Rebel Capitalist News Oh Sh*t...Banks Haven't Done This Since 2008
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Jul 14, 2025 The podcast delves into the troubling increase in broker-dealer assets tied to past banking crises like 2008, raising red flags about market stability. It explores risky bank strategies involving collateral and repo loans while critiquing the weaknesses in Basel III regulations. Listeners gain insights into the forthcoming Consumer Price Index release and its implications for federal monetary policy, drawing parallels between current banking practices and historical trends, hinting at potential economic challenges ahead.
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Banks Bolster Balance Sheets Like 2008
- Banks expanded broker-dealer assets by $490 billion or 37.2% annualized in Q1, the biggest increase since early 2008.
- This signals unusual balance sheet activity similar to times before financial crises, not just market buying.
Banks Use Repo to Inflate Assets
- Broker-dealers primarily buy treasuries and mortgage-backed securities using repo borrowing, inflating their balance sheets.
- They borrow cash first then buy collateral, which remains on their books, enabling rehypothecation and potential profit.
Collateral as Crisis Insurance
- Broker-dealers buy high-quality collateral like treasuries and then lend or rehypothecate it multiple times.
- If a crisis happens, this collateral becomes extremely valuable, akin to buying insurance against financial collapse.