The future of the financial system
Much has been said about the impact of Covid on the economy and the use of public assistance to support and revive it
Much has been said about the impact of Covid on the economy and the use of public assistance to support and revive it.
The financial system benefited, in some ways, from the effects of the lockdown not only by being the intermediary between the economic players and the states to convey the entirety of the cashflow, but also by benefiting from the volatility recorded by markets all over the world, which favored a certain kind of hyperactivity when it comes to the sale of assets.
So far so good, then. But what will happen when the effects of this trend, which I dare to shamelessly call depression, will hit, data at hand, the economic fabric, the companies, and the families, as shown by the data collected over the last few weeks?
I’m not just talking about the battered tourism sector, the recovery of which will depend on many factors, starting with the recovery of air transport and the free movement of people.
What effects will there be on the whole world of credit intermediation?
And that’s not all. What will happen when the tsunami effect also reaches the derivatives market, thus exponentially multiplying the effects on real economies?
You remember the 2008 crisis of the subprime credit market, the CDOs and all the derivatives connected to them. Only state intervention allowed banks not to fail.
Now, in my opinion, the situation is even worse than it was then and the states are already stretched to their limits, because they have already dispensed a veritable flood of funds to face the impact of these first two months of crisis.
What will happen then?
I am optimistic by nature, but I fear that this time the future scenarios are incredibly disturbing.
A tsunami of unimaginable proportions will arrive at the gates very soon, probably as early as 2021, and I fear that this time it will be devastating.
Unfortunately, we have never taken the experiences of the past to heart and, although I sincerely hope to be wrong, this time the bill will be steep and the menu too heavy to digest.
However, history has shown that we are stronger than everything and that, even in the darkest moments, we have been able to find the way to put everything back together and keep going forwards.
Many heavy sacrifices await us, but be confident: we will win again.