THE SWISS-based Bank for International Settlements (BIS) has issued yet another warning that the world’s banking system is heading for a monumental crash.
The BIS, the ‘central bank of central bankers’ and the world’s top financial watchdog, is once again warning that the gigantic debt bubble built up by the capitalist financial system is on the point of exploding and bringing the entire system down in a crash that will exceed that of 2008.
According to the BIS, the banks have been carrying out exactly the same practices of handing out massive loans to companies that are already up to their necks in debt and have junk ratings on their credit scores.
They report that these ‘high risk loans’ – high risk because there is no chance they will ever be repaid – now stand at $1.4 trillion worldwide with the number of companies with debts five times more than the profits they make estimated to have soared to 60%.
Of these, nearly one third have debts that are an eye watering six times more than they earn in profits.
These are the ‘zombie companies’, a term coined by the BIS to describe companies and firms that exist entirely through piling on debt that is then used to buy back their own shares – bolstering their share prices on the stock exchanges of the world and guaranteeing billions for the shareholders and bosses.
These companies dominate capitalism today, and they face collapse and ruin if there is even the slightest increase in interest rates on their debt repayments.
The majority (a massive 80%) of these loans, or debts to be accurate, are unsecured, meaning that default would sweep through the world financial system like a tsunami engulfing banks, financial systems and giant companies in one almighty crash.
What is terrifying the BIS is that these ‘loans’ have been packaged up and sold on as secure assets.
An article in yesterday’s Telegraph explained: ‘They are packaged into debt securities known as collateralised loan obligations (CLOs) and mostly sold to unknown funds.’
As the Telegraph article points out: ‘This mimics the pattern seen in subprime debt when documentation standards collapsed in the heady days of the asset boom.’
This underlines the warning given by the BIS in its report that ‘late-cycle surge in “leveraged loans” has echoes of financial engineering before the Lehman crisis and could lead to a cascade of fire sales if conditions suddenly tighten.’
This is exactly what happened in the run up to the banking crash of 2008, when unsecured loans in the US subprime mortgage industry reached epic proportions and were also parcelled up as cast-iron assets and sold to banks and financial institutions throughout the world.
When the bottom fell out, and these assets turned out to be bad debt, the banks were left just sitting on a pile of IOUs.
Immediately, they insisted they were too big to fail and had to be bailed out by governments printing trillions of dollars, pounds and euros to be handed out to them through the Quantitative Easing programmes and near zero interest rates that only encouraged even more borrowing.
The banks demanded that the working class pay for their crisis through the most savage austerity cuts that pauperised workers and their families across the globe.
Now today capitalism, having exhausted all the monetary weapons of QE and low interest rates, is facing an even bigger crash than 2008.
However, it also faces a working class that is rising up against capitalist austerity and is determined not to see their lives shattered any more in order to keep the bankers and hedge fund owners from collapsing into bankruptcy, and their jobs destroyed by industries crashing.
The only way forward for the working class is to seize power and overthrow the bankrupt world capitalist system and replace it with a worldwide planned socialist economy based on satisfying the needs of people.
This is the only way out of the capitalist crisis for the working class today – to build sections of the International Committee of the Fourth International in every country to lead the world socialist revolution to victory.