A leading Wall Street shadow bank has been hit with a surge in withdrawal requests of more than $5bn (£3.8bn) from spooked investors amid warnings of a 2008-style financial meltdown.
Blue Owl Capital said on Thursday it would block some redemptions from two major funds after it was swamped by demands from its financial backers to withdraw their cash.
The reason it’s not the same is that they can – and have – blocked redemptions.
Bank deposits are an “open ended fund”. Turn up, ask for the money back, get it. Deposits are recallable upon demand that is. As a bank must have a deposit to finance a loan this means the bank is bust if deposit withdrawals happen faster than the loans can be called in.
If you can tell people they cannot have their deposit back you are both not a bank and also not subjecty to a bank run. So, no, this is not like 2008. These are “closed end funds” and a closed end fund cannot suffer a run.
Sure, sure, many of those loans could go wrong. But the effect, if they are, is that we watch the capitalists lose money rather than the financial system falls over. It’s not 2008.
A useful test of financial market idiocy is people claiming that it will be the same.
Spot on re the idiocies about a “bank run” on a private credit fund.
The hysteria about “shadow banking” is 99% media bullshit from hacks who ought to know better. Although the Terriblegraph’s City hacks don’t seem to know anything at all.
If every private credit fund in the world lost 100% of its assets overnight, there would be a lot of unhappy people, but no “contagion”. Pension fund allocations to the asset class are below 3%.
There’s a lot of bank lending to these funds, but the banks are first in line to get their money back if things go wrong. Obviously there’s always the chance that someone will fuck up badly and some small bank will turn out to have extended $10 billion to funds specialising in overinflated AI startups, but them’s the breaks in capitalism.
People make a fuss about tech-focused private credit funds, but most private credit is funding far more mundane things, like the purchase of machinery or real estate development. And many of the loans (especially in riskier sectors and markets) have added layers of security, like personal guarantees from owners of businesses.
“a lot of unhappy people, but no “contagion””
So long as the banks haven’t been lending to the investors, who now can’t make their repayments.
But even then, seems unlikely to be big enough to bring down anything major.
So there’s a reason for the “shadow banking” hysteria.
I suspect it has more to do with more difficulty in tracking stuff. Or something like that.
No the banking system won’t need bailing out again. But the effects are going to be felt in the economy. You can’t have hundred of billions, maybe trillions of capital vaporised and it not have negative effects. It could trigger a global recession. And while thats not exactly Armageddon, one has to remember that all the Western nations are not in very good condition these days, economically or socially. They are all struggling (often with self imposed problems it has to be said). None of them are in a position to do much about a proper recession. They haven’t had to face one since 2008-10. And haven’t had to face one without money printing since the early 90s. They have already maxed out their credit cards on idiotic spending since like Covid and importing the third world and fighting imaginary gaseous enemies, and the normal post 1970 response to a serious recession (the State borrows more money and pumps that into the economy to stabilise things) is not going to be available this time around. And printing money and spending that isn’t available this time either, as the markets have seen what that does just a few years ago during Covid and won’t stand for it. The old impossible triangle comes into play – you can control 2 of interest rates, capital mobility and exchange rate, but not all 3.
For the first time since the world went fully fiat in 1970 Western economies are going to face a recession with very little meat left on their bones. At the mercy of the true wealth producers of the world (those who dig and process stuff out of the ground and those who can produce the necessities of life, not the fripperies). It is not going to be pretty. Look how Rachel Reeves is casting around right now for a few billions to throw at the welfare classes to pay their ‘leccy bills. Now imagine her position if tax revenues are falling due to a deep recession, spending is climbing even faster than today and inflation is rising due to a falling exchange rate (and we import everything important, because it makes us wealthier). She (and we) are f*cked.
“You can’t have hundred of billions, maybe trillions of capital vaporised and it not have negative effects.”
If this results in less total currency out there, the effects might actually be positive.
Though I doubt this will be an outcome. That isn’t the plan.
If it permits redemptions it isn’t a “closed-end” fund, it’s an “open-ended” fund. There is a sub-class of “open-ended” funds which are able to close to new investments and/or suspend withdrawals.
THe rest of your comment seems valid.
Lemme guess: Telegraph WANTS a run on the banks. Why else would Telegraph print this scare story?
Incidentally, those of us who suggest that relying on foreign imports for large amounts of what we consume is a false economy are often derided by the free traders by way of jibes such as ‘Where’s the U-boats out in the Atlantic then?’
I think the events of the last month have shown you don’t need a U-boat fleet to deny international shipping free passage, you just need enough drones to put the ship owners (and their insurers) off from wanting to find out how big the threat actually is. Just as a combination of lawyers and insurance company arse covering seem to control everything in the West these days, the same goes for international shipping too. You don’t have to sink every ship heading for the UK, just hitting one or two will be enough for the insurers to pull up the drawbridge, and the ship owners to decide discretion is the better part of valour. And such is our reliance on stuff from abroad if even 80% of it gets here the loss of 20% would have severe impacts. As we are often told, its all about the margin. The days of shipping having free passage anywhere and everywhere would appear to be over, and the era of relying on just in time deliveries from abroad with it.
Drones can be effective in narrow straits, but in mid-Atlantic? And shipping losses didn’t stop the Atlantic convoys in WW2 (though the U-boat war was a close run thing).
A ship loaded with drones setting them off from the middle of the Atlantic could do a decent bit of damage before its found and sunk. And as I said, such is the way of the world nowadays, the mere threat of such would be enough to put many ship owners from attempting to run the gauntlet. You don’t have to do the thing, just threatening to do it means the bean counters sh*t themselves and give in immediately.