THE IMF (International Monetary Fund) has issued another stark warning that world capitalism is at serious risk of an international financial crisis caused by US banks and lenders engaged in reckless speculation.
It was exactly one year ago that the Silicon Valley Bank collapsed, followed rapidly by the Signature Bank and then First Republic bank.
While Silicon Valley and Signature banks were written off by the US banking authorities and the central bank as niche banks involved in high risk loans concentrated in the high-tech computer industry in California, no such claim could be made of First Republic.
First Republic operated along ‘normal’ banking policies of investing heavily in ‘safe’ long term assets like mortgages and US government securities, relying on near zero interest rates to make these investments profitable. The US government was forced to step in to prevent investors in the three banks from massive losses by providing all the money to cover losses incurred.
The working class in the US, UK and EU were left to pick up the bill for bailing out the financial speculators who invested huge sums in these banks and were queuing up to withdraw their cash before they collapsed.
Immediately following this bail-out, the central banks and governments assured the world that the crisis had been contained and stability had returned to the capitalist banking system.
Now, one year on, the IMF is ringing the alarm bells warning that US lenders risk triggering a new even deeper financial crisis.
The immediate cause for the IMF’s panic warning it describes as US lenders’ ‘reckless exposure’ to the American property market.
In a direct reference to last year’s meltdown, the IMF, in a research paper on financial stability, said that a ‘weak tail of banks’ had gorged on US commercial real estate that could create a repeat of the worldwide crisis triggered by the collapse of Silicon Valley Bank.
At the centre of this latest crisis is the impact of high interest rates on the value of commercial property.
The majority of commercial loans from the banks were made when interest rates were near zero and these properties were full to capacity.
This has changed dramatically; interest rates have soared and the majority of the giant expensive commercial buildings are half full or completely empty as companies hand back the keys and default on the massive increase on their rentals, leaving huge liabilities on bank balance sheets.
These liabilities far exceed any money in the bank vaults, rendering them liable to crashing into bankruptcy.
The IMF warned that regional US banks, who are the most exposed to the commercial property market, are now the main threat to financial stability.
The amount of exposure by these banks is massive, with the IMF estimating that around two-thirds of their $3 trillion exposure to bad loans is down to the commercial property market.
The IMF said a ‘sizeable subgroup’ of banks in the US are in trouble ‘with fears that the failure of one institution could precipitate a broader loss of confidence in the sector’.
Put bluntly, the IMF is warning that the international banking system faces a crisis on a bigger scale than the 2008 banking crash that was brought on by the sub-prime residential property crisis.
This led to the collapse of Lehman Brothers, an investment bank that parcelled up all the US mortgage debts and sold them around the world as ‘assets’, bringing down the entire world banking system.
Today, the IMF is warning an even greater crash is rapidly emerging in the US banking system, a crash that will see governments throughout the world resorting to even greater attacks on the working class than those experienced under the previous austerity measures taken after the 2008 crash.
The working class in the US, UK and Europe has shown they are not prepared to accept being driven into the gutter to bail out the banks once again.
The only answer to this historic crisis is for the working class to demand their unions act by calling general strikes to bring down their governments and bring in workers’ governments that will expropriate the banks and major industries, replacing bankrupt capitalism with a socialist planned economy.
