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These Losses Exceed Junk Mortgages, and They’re Just Getting Started

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Investors recall that the financial panic of 2008 actually started in 2007 with massive loan losses in subprime mortgages. Those losses caused certain hedge funds and money market funds to close their doors.

Investors scrambled for liquidity to cover their mortgage loan losses. This led them to sell equities, bonds and gold to raise cash to meet margin calls.

The panic was subdued in late 2007 but came back to life in 2008 with the collapse of Bear Stearns, Lehman Bros., AIG and others. The Fed and Treasury intervened to provide guarantees and liquidity, but not before everyday investors saw half their net worth wiped out.

The crisis was not confined to the U.S., but spread worldwide to Europe, China and Japan. Now a new loan loss crisis is unfolding.

The new crisis is not in mortgages but in student loans. Total student loans today at $1.6 trillion are larger than the amount of junk mortgages in late 2007 of about $1.0 trillion. Default rates on student loans are already higher than mortgage default rates in 2007.

This time the loan losses are falling not on the banks and hedge funds but on the Treasury itself because of government guarantees. This article explains that not only are student loan defaults soaring, but household debt has hit another all-time high.

Student loans and household debt are just the tip of the debt iceberg that also includes junk bonds, corporate debt and even sovereign debt, all at or near record highs around the world.

Get ready for another debt crisis and global financial panic. This time it won’t come from mortgages alone but from all directions at once.

Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

 

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