Are We Ready For Next Financial Crisis?

The funny thing about financial bubbles and bursts is that everyone always stands around AFTER they have happened and say, "Wow!  We never saw that coming!  We had no idea!!"

And so now with the stock market at record highs, corporate earnings seeming to be robust and bulldozers are working everywhere....it seems that good times are here again!!

Is it really all fixed??  Did we survive the meltdown of 2008 and is it really clear sailing from here on out?

What Will the Next Financial Crisis Look Like—and Are We Ready?

The subprime crisis and the subsequent failure of Lehman Brothers came as such a shock—and the repercussions were so severe that when the time came to mount a response, policymakers were as surprised as the rest of us and woefully unprepared.

In the six years since Lehman’s collapse, much effort has gone into thinking about the next crisis and about how to strengthen financial rules and practices so that the fallout is contained. Has this effort been productive? Will the repercussions of the next crisis be less damaging?

Another Banking Crisis?
The answer, as with many things economic, is: it depends. It depends in particular on the form the next crisis takes. Most obviously, that crisis could be sparked by the collapse of a large bank, similar to bank failures in the United States and other countries in 2007 and 2008. Banks are highly leveraged, and information about their underlying condition can be difficult to obtain. This means that they are always at risk of going bust.

Governments have therefore focused on making the banking system more robust and better able to withstand the failure of a large financial institution. Banks are now required to hold more capital so that they have a larger cushion to absorb losses from the collapse of one of their number. They are now subject to liquidity requirements to ensure that they have adequate resources if the interbank market, on which they borrow overnight, dries up.

But recent financial reforms like the Volcker Rule and changes in capital requirements for banks have made it more expensive for U.S. financial institutions to hold inventories of bills and bonds. Consequently, if there is a sudden movement out of those instruments by the same money managers that have the movement in, their prices could implode.

Liquidity premiums—the extra yield investors demand to own a security when it can’t be converted easily into cash—would explode, and exchange-traded funds with positions in such assets could find themselves unable to redeem their shares. Officials like Mark Carney, governor of the Bank of England, have been warning of this danger in the hope that warnings will lead investors to be better prepared. Perhaps those warnings will have some effect. Time will tell.

But these, to invoke Donald Rumsfeld, are the “known unknowns.” These are the crisis risks we perceive and for which we are attempting to prepare because they resemble crises past.

There have been bank failures before. The eurozone had a near-death experience in 2012, as I describe here. The sudden surge in yields of which Carney warns would resemble the liquidity crisis that resulted from the failure of the mega-hedge fund Long-Term Capital Management in 1998. These types of crises are likely to be manageable precisely because they have a history.

More dangerous are Rumsfeld’s “unknown unknowns,” the financial crises that come from unanticipated sources. History provides no guidance about their form; all we know is that there will be some. And the other thing financial history tells us for sure is that their impact will be severe.

Here;  http://www.theepochtimes.com/n3/1121459-what-will-the-next-financial-crisis-look-like-and-are-we-ready/

1 Timothy
6 But godliness with contentment is great gain. 7 For we brought nothing into the world, and we can take nothing out of it. 8 But if we have food and clothing, we will be content with that. 9 Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. 10 For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.

How many of us Americans are guilty of wanting to get rich?  How many of us have fallen into temptation and a trap with our yearning for more and bigger "stuff"?  How many of us have lost marriages over money?  How many of us have neglected the Word of God because we are so busy chasing the desires of this world?

Friends, it's time to sober up.  Time is short.  Soon He will come for us...or soon we will go to Him....either way, we don't have much time to be busy about The Master's business.