THE rapidly developing crisis within the so-called ‘shadow banking’ industry will result in a massive and dramatic catastrophe that has the power to ‘destroy the Trump presidency’.
This is the dire prediction by financial analyst Matthew Lynn in an article in the Telegraph on Monday.
The shadow banking industry took off following the global banking crash of 2008, which forced governments and central banks to impose restrictions designed to regulate and rein in the uncontrolled financing of risky businesses and enterprises by traditional banks.
To avoid regulations, an entire global private credit industry exploded onto the scene including hedge funds, insurance firms, pawn shops and payday lenders amongst an army of institutions prepared to take on vast amounts of debt to issue to finance companies and businesses unable to obtain money from traditional banks.
The very opaque nature of these non-banks, providing massive loans outside any oversight or regulation, means it is impossible to say with accuracy the scale of the involvement in the international financial system, but it is estimated to involve trillions of dollars used to provide loans at a high interest to high-risk companies.
For months, central banks have been warning of the risk that most of these loans are unrepayable and pose an extreme threat to the very foundations of the capitalist financial system, as bad loans rapidly accumulate.
Now all those fears are being realised, as major credit institutions have begun limiting the amount their investors can withdraw in order to avoid complete collapse.
Last week, a leading Wall Street shadow bank, Blue Owl Capital, was hit by a surge of withdrawal requests of over $5 billion from investors running scared of losing their money. Blue Owl started limiting investors’ ability to withdraw their cash, fearing a run of investors pulling out and crashing the entire financial debt system.
Blue Owl was not alone, as Lynn writes: ‘Plenty of other funds, such as KKR, Ares Management and Apollo Global, have limited withdrawals to 5%’.
Lynn writes that the imminent collapse of the shadow banking system places Trump, the US Treasury and the Federal Reserve bank in a quandary.
After the financial crash of 2008, central banks in the US, UK and Europe organised massive bailouts to stop the entire banking system from collapsing.
The working class paid for this bailing out of the bankers through the imposed savage austerity regimes.
Lynn asks, would US (or UK and European) workers stand for seeing central banks ‘writing out cheques for billions of dollars to rescue a private credit fund that is about to collapse?’
Given that Trump’s Maga base of supporters vehemently opposed bailing out the banks in 2008, Lynn’s prediction places Trump in an impossible situation because ‘if the shadow banking industry fails, it will take the economy down with it.’
Lynn concludes: ‘A shadow banking crisis will destroy the financiers and their investors, but as it starts to unravel it may well destroy the Trump presidency as well.’
While on Monday, Trump was repeating his threats to bomb Iran back to the Stone Age, he is presiding over a bankrupt US capitalist economy drowning in over $39 trillion of debt with no way out but to declare a class war at home.
In desperation, Trump and the American capitalist class are preparing for war at home to impose recession on the backs of US workers and youth, while conducting a brutal and illegal war against Iran and the Palestinians to gain control over the Middle East.
The burning issue today is for the working class in the US, UK and Europe to unite in taking action to bring down the Trump administration and their own capitalist governments.
Workers must demand their trade unions mobilise the strength of the working class in general strikes to bring down their governments and bring in workers governments that will expropriate the bankers and bosses, replacing bankrupt capitalism with a socialist planned economy.
The time has come to put an end to capitalism with the victory of the World Socialist Revolution.
This is the only way forward, and the sooner the better!
