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No, Credit Suisse Isn’t A Lehman Moment
I hesitate to give more airplay to the Credit Suisse "story."
Over the weekend, finance-focused soc
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You just helped to verify that my avoidance of all social media is justified. Thank you.
I mean, I don’t want to suggest there’s absolutely no risk of a systemic event here whatsoever under any circumstances. My main point, rather, is that Credit Suisse isn’t just going to implode overnight (as thousands of people on Twitter seemed convinced it might) and that central banks would do everything in their power to prevent the counterparty risk from turning into a nightmare in the event the situation deteriorated. We have some experience with this sort of thing now, after all. More importantly, I wanted to remind everyone that getting information on a SIFI restructuring from random Twitter accounts is manifestly insane.
Excellent! Fantastic to see a well informed, balanced, commentary on CS the “imminent default” crowd could learn a lot from.
The central banks learned from Lehman. If a run started they would throw inflation fighting to the back burner. They would not like it but they would do it.
Of course they would. And that’s really my whole point. I don’t doubt (at all) that things are potentially worse at CS than CS is letting on (but even there, that’d be the case at any business that was having trouble, from a local sandwich shop all the way up to a SIFI — nobody is going to publicly say just how bad things are until they have to). What I do doubt, though, is that the systemic risk is as acute as it would be were it not for the Lehman experience. Central banks know how to deal with this now. Of course, stocks would absolutely crash for a day or two in the event of CS “event.” But that’s something different from suggesting funding markets would freeze and counterparties would stop dealing with each other, etc.
I’m glad you posted on this, not because of “concerns” about CS, but because I saw this blowing up on Reddit and Twitter and immediately thought, “I bet Heisenberg has a funny hot take.” It’s one of those moments when I have to resist the temptation to slide into your Twitter DMs fishing for laughs.
I actually wish I had more to say, but I mean… if this were actually as bad as several thousand random Twitter folks seem to believe it is, you’d literally be able to feel the panic. And it’d be all anyone was talking about in sales and strategy notes today. It’s not that I think there’s “no there, there,” so to speak, it’s that I think what is there is something different from what the Twitter crowd thinks. I think what’s there is another disappointing turnaround effort, and what’s ahead is a long, arduous trek back to respectability, with episodic bouts of speculation like what you’re seeing today. If CS is ever really “on the brink,” the Reddit / Twitter crowd won’t be the first to know, I can promise you that.
The Lehman moment taught the Fed a lot and I feel strongly that any big bank will not be allowed to go under because of unknown counter party risk. I always thought that Lehman had a chance when they were working with the Korean Development bank, but in retrospect Dick Fuld was too greedy and couldn’t accept that the market valuation of the real estate portfolio had gone down that much. After checking this morning Credit Suisse is ranked 116 by size so their are plenty of banks that could buy them out if need be willingly or not.