Remember just a year ago if not sooner many banks hit headlines become insolvent and asking to be bought out by larger banks?

Well it seems like we are most likely going to start repeating this once again. Clearly show the economy is not in a good state as we roll into this election season what scares me is how much political parties are going to try and cover this up and paint things into a hopeful picture when really things are worse then they ever have been.

The united states dollar has fallen as the sole currency around the world and it wasn't even crypto which they were so worried about. Instead it was the spark of a new cold war that really hasn't ever cooled off.

The issues of the 50s and 60s still remain and battles seem to continue to wage over this. With all honesty looking back at things if the united states would have stuck up wars like Korea for another 1-3 years there most likely wouldn't even be a North Korea right now.
Alright getting off topic on an opinion rant which some times happens lol

Let's get back into the economy and banks...

Banking Collapse

Just months ago First Republic Bank, Silicon Valley bank and signature we are seeing a another set of banks really to come crashing down. This time just like 2008 it's mainly steaming around real estate.

Yep, a repeat of 2008 is most likely coming which was one of the hardest hit recessions of it's time. This was when I was just a few years into the workforce where everyone said invest, invest and invest some more. What happened was the near liquidation of my assets! Mainly because back then you had limited options on you 401k because it was managed by a hedge fund which would only give you a few options.

Fractional Reserve Banking

Many people still don't know this but the money you put into the bank is not actully in the bank. Most banks are only required to hold 10% of the funds you deposit while loaning out the other 90% of the money. This was a stop gap safety net to avoid bank runs that happened during the great recession.

This is beneficial to the banks as they can now load out large amounts of money and collect interest on those loans. That money coming in along with new deposits should hold off someone or many people wanting to take large amounts of funds out of the bank.

I mean yeah, again classic definition of a pyramid scheme but for some reason banks and governments are allowed to get away with it. Now there are benefits to the system as well. It allows every day people to be able to take out loans for cards, houses and other high cost items. It also allows us to earn some form of APR interest rate on the money we deposit in.

The 2020, 2021 issue

During covid lock downs interest rates were brought to zero and the government handed out checks. That means people could go out and get loans of 1%- 2% and start buying up massive amounts of real estate or other hard assets. Heck idk the full rules but in a way you could have created liquid funds and dumped it into a bond or savings account on that load taking that used to be 1%-2% loan and making 4% - 5% on it actully making a 2%-4% profit for doing nothing! This is exactly what banks tried to do. They locked their money up into bonds but the issue was those bonds only yielded 1% and when inflation and sky high interest rates started to kick in banks quickly found themselves losing money on these so called "safe investments"

and that's where the issue and implosion is starting to happen.

This issue ended up giving us the first round of major banks crashing. Now we are moving on to a new phase of which real estate in particular commercial real-estate.

How this is like 2008 is exactly this. 2008 mainly saw banks loaning out money to people to buy homes who honestly couldn't afford it. This was ok for a little while but ended up catching up fast as people started to default on their loans and other issues showed up as the markets changed.

This time around banks loaded out tons of money to commercial real-estate which is today one of the worst investments. With AI taking more jobs, work from home still being a pretty major thing and simply less jobs needed we are seeing a drastic reduction in commercial real-estate such as offices being in demand. These offices normally run off of renting the building out from the company for a year or more. Now that some of these are expiring and companies are not buying up the buildings again this puts huge pressure on banks and the commercial real-estate business.

Trillions of dollars are currently held in this part of the economy in fact it's roughly around 3 trillion which is more than the entire crypto market cap. These loans are expiring over the next 3 years so we are only starting to see the impacts of these at the moment. What happens with commercial real estate is that the loan is only fixed for so many years and then has to be setup again with new loan numbers. This is pushing a lot of companies to reconsider buying that office space again at a massive 7% loan rate compared to the 1%-4% it was before.