Moral Hazard

Tyler Durden's picture

Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers

In what amounts to evidence that the subprime auto problem is indeed growing, The New York Fed's Quarterly Report on Household Debt and Credit (out today) shows that lenders extended more than $110 billion in auto loans to borrowers with credit scores below 660 over the past six months alone. 

Tim Knight from Slope of Hope's picture

What's Wrong with Class War?

To compare someone like Bernie Sanders to bloodthirsty monsters like Stalin and Pol Pot is too ludicrous for words. I've heard of slippery slopes before, but good lord, this guy must be totally off his rocker

Tyler Durden's picture

Mario Draghi Admits Global QE Has Failed: "The Slowdown Is Probably Not Temporary"

"The conditions in the economies of the rest of the world have undoubtedly proved weaker compared with a few months ago, in particular in the emerging economies. Global growth forecasts have been revised downwards. This slowdown is probably not temporary."

Tyler Durden's picture

Did The PBOC Just Exacerbate China's Credit & Currency Peg Time Bomb?

China as the global Bubble’s focal point – the weak link yet, at the same time, the key marginal source of Bubble finance. China’s policy course appears to focus on two facets: to stabilize the yuan versus the dollar and to resuscitate Credit expansion. For better than two decades, similar policy courses were followed by myriad EM policymakers in hopes of sustaining financial and economic booms. Many cases ended in abject failure – often spectacularly. Why? Because when officials resort to such measures to sustain faltering Bubbles it generally works to only exacerbate systemic fragilities. For one, late-stage reflationary measures compound Credit system vulnerability while compounding structural impairment to the real economy. Secondly, central bank and banking system Credit-bolstering measures create liquidity that invariably feeds destabilizing “capital” and “hot money” outflows.

Tyler Durden's picture

IIF Warns Household Wealth Gains Will Disappear Unless Fed Normalizes Rates Soon

"Easy policy has passed the point of diminishing return and keeping it longer would only increase moral hazard and distort financial markets," exclaims the Institute of International Finance, warning that the gap between the value of Americans' holdings of stocks, bonds and other financial assets and the trend growth rate of the economy is still large and not far off the level that prevailed in 2007 before the financial crisis. "The Fed should start to normalize policy as soon as possible," removing the excess as the 'gap' "typically ends up being narrowed by a correction in the stock market."

Tyler Durden's picture

We Now Have An ETA When The Biggest Bond Bubble In The World Will Burst

"On the current trajectory, we doubt the market can stay stable beyond a few quarters, especially if some SOE and/or LGFV bonds indeed default."
- Bank of America

Tyler Durden's picture

Why Is Wealth/Income Inequality Soaring?

Why is wealth/income inequality soaring? The easy answer is of course the infinite greed of Wall Street fat-cats and the politicos they buy/own. If conventional labor and finance capital have lost their scarcity value, then the era in which financialization reaped big profits is ending.

Tyler Durden's picture

Truth Is Being Suppressed By The Tools Of Money

Global Capitalism is trapped in its own Prisoner’s Dilemma; fourty four years after the end of the Bretton Woods System global central banks have manipulated the cost of risk in a competition of devaluation leading to a dangerous build up in debt and leverage, lower risk premiums, income disparity, and greater probability of tail events on both sides of the return distribution. Truth is being suppressed by the tools of money. Market behavior has now fully adapted to the expectation of pre-emptive central bank action to crisis creating a dangerous self-reflexivity and moral hazard. Volatility markets are warped in this new reality routinely exhibiting schizophrenic behavior. The tremendous growth of the short volatility complex across all assets, combined with self-reflexive investment strategies, are creating a dangerous ‘shadow convexity’ that will fuel the next hyper-crash.

Tyler Durden's picture

Peak Debt, Peak Doubt, & Peak Double-Down

Investors are too complacent (the Minsky-Moment).  Too many are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets, incentivized by the need to beat peers and benchmarks and comforted into complacency by the Fed ‘put’. The true level of risk is being ignored. The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons...

Tyler Durden's picture

"Shadow" Short Convexity: If You Short 'Fear', Be Prepared For 'Horror'

The 2007-2008 financial crash was not a black swan. That is a collective lie propagated by policy makers so they don’t cry themselves to sleep at night. Many different people predicted and profited from the 2008 crisis. It was about the fear of failing banks and crashing markets... but the true horror was the impending collapse of the entire fiat money system that never came to be. That was the true black swan. 

Tyler Durden's picture

The Economic Doomsday Clock Is Closer To Midnight

Central banks are fearful and unwilling to normalize but artificially high valuations across asset classes cannot be sustained indefinitely absent fundamental global growth. Central banks are in a prison of their own design and we are trapped with them. The next great crash will occur when we collectively realize that the institutions that we trusted to remove risk are actually the source of it. The truth is that global central banks cannot remove extraordinary monetary accommodation without risking a complete collapse of the system, but the longer they wait the more they risk their own credibility, and the worse that inevitable collapse will be. In the Prisoner’s Dilemma, global central banks have set up the greatest volatility trade in history.

Tyler Durden's picture

Moral Hazard, "Supernormal" VIX Swings, And Why August 2015 Was Just An Appetizer

The single most important “unknown unknown” today is any random event that may unexpectedly cause global central banks to withdraw their stated support of markets. Moral hazard has contributed to a significant build up in short and leveraged volatility creating a shadow ‘volatility gamma’ that reinforces the current trend in volatility direction. Rising volatility is followed by more rising volatility and vice versa. The pattern is creating a pro-cyclical monster of short volatility that, if left unchecked will contribute to a repeat of the May 2010 Flash Crash or 1987 Black Monday Crash. August 2015 was just an appetizer.

Tyler Durden's picture

The Perilous Misperception That Central Bankers Have Mitigated Market Risk

Never have markets carried so much risk. And never have markets been as vulnerable to an abrupt change in perceptions with regard to central banker competence, effectiveness and capabilities. At the minimum, global markets will function poorly, but risk is now high for a disorderly – Party Crashing - "run" on financial markets, as faith in central banking begins to wane.

Tyler Durden's picture

This Hedge Fund Made 15% Yesterday As The Market Tumbled

"Artemis Vega Fund LP and associated institutional managed accounts gained approximately +15.49% gross of fees on September 1, 2015 on a day the S&P 500 index lost -2.96%. Please note this performance was for the day....  Our models currently register a 30% probability the VIX will re-test highs above 40 in the next 21 days."

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