Subprimes: Season 2
Published in Les Échos
(France) on 4 March 2015
by Edouard Tétreau (link to original)
Hello Earth? Coming back to Europe — and France — after a month-long stay in the United States is a somewhat brutal shock.
Over there, on the American planet, growth, innovation and money overflow everywhere. With an unemployment rate of 5.7 percent — compared to 10 percent in 2009 — and annual job creation at 3 million, full employment is no longer a mirage but a tangible goal.
In Silicon Valley, as well as other American tech hubs, notably Boston and New York, the tempo of innovation is exponential, following the progress of artificial intelligence: This is exemplified by the 300,678 patents recorded in 2014 (USPTO) and the warning of Bill Gates, “I am in the camp that is concerned about super intelligence.”
Money overflows everywhere: From the faucet of the Federal Reserve and its $3.7 trillion quantitative easing; in private equity funds and companies who do not know what to do anymore, some with their unused funds, others with their reserve surpluses — after dividend distributions and repurchasing its own shares — following Apple’s example — nearly $150 billion. Money abounds as well, at fundraising dinners to finance the political campaigns of future judges — prosecutors in the United States have to fundraise in order to be elected; this industry is called the justice system — or candidates for the 2016 primaries. So with Jeb Bush, who would invite you to dinner Feb. 11 at 625 Park Avenue, home of Henry Kravis (KKR), reaching the modest sum of $100,000. It will require at least competing with Hillary Clinton’s goal of raising $500 million for the upcoming Democratic primaries. These modest amounts are mere hors d’oeuvres next to the funds raised for the last congressional campaign, $4 billion for the 2014 midterm elections, or presidential, $6 billion in 2012.
In 2015 America, everything can be bought, including executive, legislative and judicial power. But who is complaining? This is the “trickle down” theory that is in vogue: Let’s pour the most money we can onto the top of the pyramid, and money will flow for everyone.
In fact today, money flows for all in the United States, just like the summer of 2007 when I settled there. It flows on the stock market: The long-term price/earnings ratio from the S&P 500 is superior at 27, a level not attained since 2007. This was the summer when the first cracks of the “subprime crisis” were felt.
Did you love the first season of the subprime crisis, circa 2008-2009? The one which no leaders of financial institutions — in Europe or the United States — saw coming? When each was too busy counting their bonuses, ventilating their toxic products and explaining that financial risk had disappeared once we found the best system for circulating it everywhere, in a painless way? This crisis, which should have provoked cardiac arrest for the global financial system without a good dose of luck, as well as resolute government intervention — these states which are booed once growth returns, but before whom one extends the begging bowl while whining most of the time?
Prepare yourself for season 2 of “Subprimes” sometime between 2016 and 2018. Fifteen days ago, the American institution Equifax, measuring consumer credit in America, revealed that 40 percent of its credit was held by subprime borrowers or, in other words, people whose risk profile is much weaker than average. In the United States, money flows effectively for the poor. But in the form of loans.
“Same player, shoot again.” To have lived in close proximity to the collapse of the global financial system and to observe today the speedy return of the financial world’s worst practices, with the passive complicity of governments, there is something discouraging in seeing the same causes producing the same results.
After this momentary euphoria, we will experience a new worldwide systemic shock. In comparison to 2008, there will be two major differences: This will be much more sudden and more intense, notably due to the fact of the massive automation of the market flow; and this time, we will be short on monetary ammunition to absorb the shock.
I will venture only one prediction for the after-crisis. It will bring to power, on both sides of the Atlantic, political individuals and movements very distant from those which Franklin Delano Roosevelt called in his speech at Madison Square Garden on Oct. 31, 1936, “the old enemies of peace — business and financial monopoly, speculation, reckless banking … those who … had begun to consider the government of the United States as a mere appendage to their own affairs.”
After the crisis, exacerbated by the resurgence of tribalism and nationalism around the world, we will have, for the worse, Podémos in Spain; Syriza in Greece; the Northern League and/or the fascists of CasaPound in Italy; UKIP in Great Britain and the National Front in France. Or for better, the future FDRs, whether American or European, who are yet unidentified. But while we wait, we must come to terms with Herbert Hoover, he who so believed in laissez-faire economics that he allowed the Great Depression of 1929, along with its consequences for world peace.
Over there, on the American planet, growth, innovation and money overflow everywhere. With an unemployment rate of 5.7 percent — compared to 10 percent in 2009 — and annual job creation at 3 million, full employment is no longer a mirage but a tangible goal.
In Silicon Valley, as well as other American tech hubs, notably Boston and New York, the tempo of innovation is exponential, following the progress of artificial intelligence: This is exemplified by the 300,678 patents recorded in 2014 (USPTO) and the warning of Bill Gates, “I am in the camp that is concerned about super intelligence.”
Money overflows everywhere: From the faucet of the Federal Reserve and its $3.7 trillion quantitative easing; in private equity funds and companies who do not know what to do anymore, some with their unused funds, others with their reserve surpluses — after dividend distributions and repurchasing its own shares — following Apple’s example — nearly $150 billion. Money abounds as well, at fundraising dinners to finance the political campaigns of future judges — prosecutors in the United States have to fundraise in order to be elected; this industry is called the justice system — or candidates for the 2016 primaries. So with Jeb Bush, who would invite you to dinner Feb. 11 at 625 Park Avenue, home of Henry Kravis (KKR), reaching the modest sum of $100,000. It will require at least competing with Hillary Clinton’s goal of raising $500 million for the upcoming Democratic primaries. These modest amounts are mere hors d’oeuvres next to the funds raised for the last congressional campaign, $4 billion for the 2014 midterm elections, or presidential, $6 billion in 2012.
In 2015 America, everything can be bought, including executive, legislative and judicial power. But who is complaining? This is the “trickle down” theory that is in vogue: Let’s pour the most money we can onto the top of the pyramid, and money will flow for everyone.
In fact today, money flows for all in the United States, just like the summer of 2007 when I settled there. It flows on the stock market: The long-term price/earnings ratio from the S&P 500 is superior at 27, a level not attained since 2007. This was the summer when the first cracks of the “subprime crisis” were felt.
Did you love the first season of the subprime crisis, circa 2008-2009? The one which no leaders of financial institutions — in Europe or the United States — saw coming? When each was too busy counting their bonuses, ventilating their toxic products and explaining that financial risk had disappeared once we found the best system for circulating it everywhere, in a painless way? This crisis, which should have provoked cardiac arrest for the global financial system without a good dose of luck, as well as resolute government intervention — these states which are booed once growth returns, but before whom one extends the begging bowl while whining most of the time?
Prepare yourself for season 2 of “Subprimes” sometime between 2016 and 2018. Fifteen days ago, the American institution Equifax, measuring consumer credit in America, revealed that 40 percent of its credit was held by subprime borrowers or, in other words, people whose risk profile is much weaker than average. In the United States, money flows effectively for the poor. But in the form of loans.
“Same player, shoot again.” To have lived in close proximity to the collapse of the global financial system and to observe today the speedy return of the financial world’s worst practices, with the passive complicity of governments, there is something discouraging in seeing the same causes producing the same results.
After this momentary euphoria, we will experience a new worldwide systemic shock. In comparison to 2008, there will be two major differences: This will be much more sudden and more intense, notably due to the fact of the massive automation of the market flow; and this time, we will be short on monetary ammunition to absorb the shock.
I will venture only one prediction for the after-crisis. It will bring to power, on both sides of the Atlantic, political individuals and movements very distant from those which Franklin Delano Roosevelt called in his speech at Madison Square Garden on Oct. 31, 1936, “the old enemies of peace — business and financial monopoly, speculation, reckless banking … those who … had begun to consider the government of the United States as a mere appendage to their own affairs.”
After the crisis, exacerbated by the resurgence of tribalism and nationalism around the world, we will have, for the worse, Podémos in Spain; Syriza in Greece; the Northern League and/or the fascists of CasaPound in Italy; UKIP in Great Britain and the National Front in France. Or for better, the future FDRs, whether American or European, who are yet unidentified. But while we wait, we must come to terms with Herbert Hoover, he who so believed in laissez-faire economics that he allowed the Great Depression of 1929, along with its consequences for world peace.