Thread by @RomanchukBrian

The thing to keep in mind is that equity markets are not really used to raise capital. (In fact, courtesy of buyback plans, where capital goes to die.) Credit markets are the lifeblood of capitalism.

In the absence of defaults, credit should bounce back. Unfortunately...

I was never a big credit person (but got dragged into it courtesy of the Financial Crisis), and I’ve no access to market gossip or data. But even I can see a few flash points.

The most worrisome is the interaction between European banks and euro sovereigns. (Oops.)

After that, we are down to sector stories - e.g., airlines, US energy sector, and companies that got laden up with debt by private equity.

I’m sure there’s horror stories, but credit markets can absorb some defaults.

Would defaults/downgrades be any worse than the tech wreck? Given the over-extension of the global technology sector going into 2001, not entirely sure.

To rack up really big credit losses (assuming that the duct tape keeps Europe together), I think you need another mass default event among households. It’s not hard to come up with a scenario for that, the only question is whether policymakers are inept enough to allow that.

I’ll leave the assessment of the competence of policymakers to the reader’s discretion.