The first indications of a bank run by China have begun. There is no panic yet. The system is bumping along. But if China does not reverse itself soon, it will become clear that the U.S. Treasury is over-leveraged. It has more debt than its income can sustain.
That is when the Secretary of the Treasury will call the chairman of the Federal Reserve System and ask for a bailout. He will get it, but its effects will not last. There will be another call. As surely as Bear Stearns was followed by Lehman Brothers, so will there be more calls from the Treasury Secretary to the chairman of the FED.
There will come a day when the FED's chairman treats the Secretary of the Treasury the way that Paulson treated Lehman's Dick Fuld. Let us not forget what happened next.
Close to 100 hedge funds used Lehman as their prime broker and relied largely on the firm for financing. In an attempt to meet their own credit needs, Lehman Brothers International routinely re-hypothecated [borrowed against – just as MF Global did] the assets of their hedge funds clients that utilized their prime brokerage services. Lehman Brothers International held close to 40 billion dollars of clients assets when it filed for Chapter 11 Bankruptcy. Of this, 22 billion had been re-hypothecated.
As administrators took charge of the London business and the U.S. holding company filed for bankruptcy, positions held by those hedge funds at Lehman were frozen. As a result the hedge funds are being forced to de-lever and sit on large cash balances inhibiting chances at further growth. This in turn created further market dislocation and over all systemic risk, resulting in a 737 billion dollar decline in collateral outstanding in the securities lending market.
BATR 2020 Election News
