Former Treasury Secretary Warns Banks Riskier Now Than In 2008 Crisis

Tyler Durden's picture

Submitted by Simon Black via,

“Sir. SIR! This your bag,” the TSA agent barked at me last week, more as a statement than a question.

“It is.”

“Are you carrying any liquids?”

I knew immediately; I had forgotten about the bottle of water that I had shoved in my briefcase before checking out of my hotel.

They opened my bag and confiscated the water bottle immediately with an extra harrumph to make sure I knew that I had wasted their time.

Yeah, I get it. I broke the rule. But it’s such a ridiculous rule to begin with.

Are we really supposed to pretend that Miami International Airport is any safer because there’s a brand new, unopened Dasani bottle in the TSA wastebin?

You may recall how Istanbul’s Ataturk Airport was attacked on June 28th by men armed with automatic weapons and explosives.

Ataturk was already one of the most security-conscious airports in the world– you actually have to go through a security checkpoint just to enter the building, followed by a second security checkpoint on your way to the gate.

And yet, despite all of this extra security, 41 people were killed and hundreds more wounded in an attack that shows just how ineffective airport security really is.

Airport security isn’t real security. It’s merely the illusion of security– a bunch of busybodies in uniforms enforcing pointless rules to make people believe that they’re safer.

Candidly, our financial system has borrowed the same principle. There’s no real safety in our financial system– merely the illusion of safety.

Leading up to the 2008 financial crisis, most people thought the banks were safe.

After all, we’ve been told our entire lives that the banks are rock solid. What could go wrong?

This turned out to be an illusion. Banks had loaded up their balance sheets with toxic assets, rendering themselves completely insolvent. They started dropping like flies.

Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, Wachovia… some of the most established banks in the US collapsed. Poof.

Ever since then, the banks, the US government, the Federal Reserve, and other financial regulators in the United States have been working to rebuild the illusion of financial safety.

Most notably came a bunch of laws and regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, designed to make the banks safer…

… or at least give the appearance that banks are safer. As you can imagine, these regulations have merely created another illusion of bank safety.

Today, former US Treasury Secretary Lawrence Summers published a new paper that slams these regulations for not having made the US banking system any safer:

“To our surprise, we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased.”

This is important. Most people have handed over their entire life’s savings to financial institutions that are far, far riskier than we are led to believe.

Ask yourself– does it really make sense to keep 100% of your savings in a financial system that goes through great pains to deliberately conceal the truth?

Why take the risk? Especially when all you really gain is a whopping 0.01% interest?

There are better options for your money.

We’ve talked about holding physical cash and precious metals– which, in combination, is a great way to hedge risks in the banking system as well as the overall monetary system.

If these banking system risks ever do erupt into another financial crisis, having some physical cash means that at least a portion of your savings will be immune to the consequences.

Should that crisis turn into a full-fledged currency crisis, having some physical gold will shield you from those consequences as well.

And even if neither of those scenarios unfolds, it’s hard to imagine you’ll be worse off holding cash and gold.

Again, when interest rates are this low, there’s almost zero opportunity cost in holding cash.

And gold remains one of the only major asset classes recognizable and marketable around the world, yet still FAR below its all-time high.

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VD's picture

says the guy that buys and drinks Dasani (Coca-Cola) bottled water in BPA plastic that isn't even properly filtered.


dow to infinity bc cntrl+ p costs even less than filtering municipal water and putting it into toxic plastic.

TradingTroll's picture

Yeah but first Dow to 15000

VD's picture

at 14,999 they could lose total control-- but there i go again being naive again, thinking of such silly things as resistance levels, technicals and fundamentals....

Manthong's picture

 “to our surprise...major financial institutions… risks have actually increased.”

Well, what  else does this sultan of high finance know now that would surprise him and could be important?

“You can burn yourself if you dive into molten magma?”

“Drinking H2SO4 could burn your tummy?”

“Firing a .45 ACP directly into your ear increases the risk of death?

“Bank depositors are now only unsecured creditors and there deposits are actually loans that are used in bets of Corzinesque proportions?”

“There is a symbiosis to the above statements?”


I am impressed with what these geniuses know.


MayIMommaDogFace2theBananaPatch's picture

Next release in Star Wars franchise has the working title of:

Jabba the Hut vs The Harvard Endowment

Creative_Destruct's picture

All of the brilliant insights they have can be filed under DUUUHH.

DieselChadron's picture

All those things are pretty 20th century by now.  Seems like lots of action happens near expiration day nowadays.  


Lets Buy The Dip's picture

yup DOW 15000 on the cards....

And the stock stock market has been crashing the last few days, cause big money is selling. Look at this SHOCKING article with proof!==>

its a set up, HILLARY was not exausted, that BEETCH was DRUNK!, and she want everything in her power, and will stop at nothing to get in office...and that she will. 

DieselChadron's picture

Exactly.  Larry has always been such a beacon of integrity.  I'm truly surprised zh gave that dbag an audience.

1980XLS's picture

All from the guy that brought you the repeal of Glass-Steagal......

JRobby's picture

Lobbying for a job in the Trump Administration Larry? Foget about it!

Delving Eye's picture

Please God, not that fat Jesus.

NoDebt's picture

"All from the guy that brought you the repeal of Glass-Steagall......"

Best comment.

Creative_Destruct's picture

Yep, and don't forget also one of the troika ( Greeny, Rubin, Summers) who stopped CFTC Chairwoman Brooksley Born from regulating CDS's & putting them on an exchange.

VD's picture

same guy blew up Harvard's endowment - central planners cant trade to save their lives, they even fuck up insider trading deals...

DieselChadron's picture

Huh?  I don't recall glass-steagall being repealed.  Was that sarcasm?  If so, it certainly wasn't funny enough to warrant 20 upvotes.  

MayIMommaDogFace2theBananaPatch's picture

seriously?  Glass-Steagall was repealed during second Clinton administration.–Steagall:_Aftermath_of_repeal

also -- I doubt that those upvotes are meant to signal 'funny' -- I think they are probably calling Larry Summers a hypocrite or just blind to his own major involvement in making all of this financial fragility possible.

BandGap's picture

His face looks like a flesh mudslide.

knukles's picture

Once when I was little I cut my finger and my mom called me her little "clot"

BandGap's picture

That explains a lot, knukles.


knukles's picture

She would never let me have a safe space, either.
You know, the blanket fort under the coffee table.
She'd tell me to get out because I was going to suffocate.

Proctologist's picture

He must have no future with Goldman ......

SomethingSomethingDarkSide's picture

Statistics say: Air is good!

The Fonz...before shark jump's picture

shit.....Paulson get ready...they may need your skills to craft another 2 pager document to get yet another 700 billion to a trillion dollar bailout.......

Tinky's picture

"To our surprise..."

This is what you get when almost unimaginable ignorance and dishonesty intersect.

NoDebt's picture

I think they ladeled on plenty of hubris gravy on top of that.  Arrogant people are often surprised.


buzzsaw99's picture

no biggie. we always knew they'd be back for another bailout.

scintillator9's picture

We always knew they'd be back for a bail in.


Latitude25's picture

Fuck you Summers and your part in destroying Glass steagal.

Latitude25's picture

Next this asshole will be telling us he's buying gold.

ali-ali-al-qomfri's picture

To our surprise......

Never seen anything like it in history....

Nobody could see this coming.....


(palm to face)

NoDebt's picture

That is arguably an improvement.

Creative_Destruct's picture

Only question is which one is the other's love-child?


Absolutely hilarious, williambanzi7.


It took me a few seconds to figure out it was Summers. ;)

Bobbyrib's picture

Same. It took me a while to forget what Larry Summers looked like.

Aubiekong's picture

Every one of the current and former bankers, politicians, fed chairman, etc should be jailed...

kenny500c's picture

We now have a system wherein the government will backstop everything. For example if Lehman became illiquid tody the money would be there. So the players learn there is no failure, so swing for the fences all the time.

This will work until the players deem the dollar worthless then no amount of money issuance can save the day, only make the problem worse.

DieselChadron's picture

I sorta doubt Lehman would get any money, even today.  

Youri Carma's picture

Summers: 'No Compelling Case' for September Rate Hike

As you can see in this post news over a possible rate hike has been going from yes to no to yes to no from one day to the other.

But Turd’s case is very compelling and I have also said it before that the banks desire hire rates.

That’s also why LIBOR has been steadily rising throughout 2016

conscious being's picture

Lawrence Summers getting his marker down for posterity, of course, way too late after it would have done any good.

Lot's of diverse stuff coming together. Was the Perfect Storm about foreshadowing the impending Krakatoa?

Is Larry saying this, the deathknell?

Creative_Destruct's picture

Summers and his slimy ilk: Start a fucking fire, let the tender and kindling burn until the fuel catches, then scream "fire" and call yourself prescient.

dexter_morgan's picture

Wow, I thought that was Eric Clapton at first, wondered what the hell is he doing in a ZH article......................

Iconoclast421's picture

To quote the famous words of Daffy Duck: "Consequences schmonsequences, as long as I'm rich"

ichan's picture

Military has some badasses. Police and Firefighters too. But TSA and Immigration. What a sorry bunch of motherfuckers. Out of shape, tired looking, 2nd rate fucks in uniform. Usually with a shit temperment and no sense of service. I can sympathize with their enforcing what is essentially a non-job. 8 hours a day of digging holes and burying them must suck. But seriously everytime I see the pathetic, clusterfuck at the airport makes me embarrassed to be a American. Incompetance and uniforms just too much cognitive dissonance. 

I'm Broke AF's picture

Isn't it obvious from the fiscal policy of the last 8 years that the "big to fail" banks are now bigger than ever before? Do we really need another white-shoe boy to tell us that?

Let them all fail one after another.  Be your own central bank and let capitalism thrive by letting the corrupt and greedy who take on more risk than necessary fail.