Thread by @LewdakrisHov

Another Global Recession looms as the Coronavirus 🦠 pandemic unleashes untold financial chaos to the world’s economy.

During the last global economic downturn over a decade ago, it was triggered by the sub-prime mortgage crisis.

This is a thread 🧵. Let’s go.
#Coronavirus

What’s a Sub-prime mortgage?

A sub-prime mortgage is a mortgage given to an individual with low/poor income with a high rate of default. The acronym NINJA perfectly describes this class of mortgage borrowers.

N I N J A M O R T G A G E S

N - No

I - Income

N - No

J - Job

A - And Asset Verification

Lenders in the US 🇺🇸 due to increased liquidity (due to foreign financial inflows from emerging economies such as China 🇨🇳) gave out loans to NINJA (sub-prime) prospective home owners. These were mostly low income earning African Americans 🙎🏾‍♂️ & Latinos 🙎🏻‍♂️with poor credit scores.

The investment banks (Banksters ie Bank Gangsters) on Wall Street now bought these sub-prime mortgages , giving the commercial & mortgage banks more capital to grow their loan portfolios. This led to a growth in the housing market as housing prices increased to meet the demand.

It is the dream of the average American to own a home as long as you have a good credit score, a good job with stability that guarantees monthly cash flow to meet obligations . This dream fueled the demand for new homes creating the housing boom

Two 🇺🇸 Government organizations known as Freddie Mac and Fannie Mae provided liquidity to the lenders to ensure that primary mortgage institutions could continually fund affordable housing.

These government bodies also bought these mortgage backed securities.

These sub-prime mortgage backed securities were repackaged as Collateralized Debt Obligations (CDOs) by the Investment Banks 🏦 alongside with Credit Default Swaps (CDS) and sold to Investors.

Credit Default Swaps allowed the buyer of such assets be compensated by the seller in the event of default. Thus providing insurance for investors who bought these CDOs.

These financial derivative products were given AAA rating by credit rating agencies who gave a biased assessment due to the fact they earned more fees for repeat business from the Banksters.

Caution was thrown to the winds.

It was a regime of low interest rates and US Treasury bonds at the time had low yields and global investors wanted higher returns on their investments.

These sub-prime mortgage backed securities had credit ratings similar to that of US🇺🇸 treasury bonds (AAA).

Due to the risk profile of sub-prime mortgages, the interest payouts was higher and spurred the appetite for investors across the globe to buy more of such securities.

This fueled the growth for sub-prime mortgage backed securities until the housing market peaked and crashed.

When the US 🇺🇸 Housing Bubble happened in 2007, the value of homes across the nation nosedived and homeowners who had taken mortgages could not get refinancing at the initial low interest rates.

This led to defaults and foreclosures on homes that already lost more than half of their value. The losses were humongous.

There was no demand for such homes as demand had dried up due to credit crunch. The finance players had lost liquidity to fund same.

The Banksters on Wall Street incurred heavy losses and some filed for Bankruptcy including Lehman Brothers.

Some were bought over such as Goldman Sachs and Morgan Stanley.

The losses to the Global economy was estimated at $6 Trillion.

The US government had to bail out banks and players in other sectors in the TARP (Troubled Assets Relief Program) initiated the Bush Administration and consummated by the Obama Administration between 2008 and 2009.

Recipients of TARP funds included Wells Fargo, Citigroup, Bank of America, General Motors amongst others. The bailout was over $400 Billion.

It’s March 2020 as the #coronavirus 🦠 spreads touching off a plunge in oil prices and a collapse in travel, and shutting factories from Italy to China, there is increasing alarm that companies in the energy, hospitality & auto sectors won't be able to make their bond payments.

This could trigger a spree of ratings downgrades and defaults that would further destabilize financial markets and compound the economic shock.

The #Coronavirus 🦠 shock has made investors anxious 😟 as stock and Oil 🛢 prices plummeted in the last 10 days. They are selling off corporate debt bonds and as the Global economic turmoil persists with the likelihood of default looming greatly

Energy companies are greatly affected with oil prices falling beyond 50% of their initial prices at the turn of the year.

The aviation 🛫 & tourism sectors are highly impacted as well.

The automobile industry is affected too with poor car sales growth in the last few years.

The same Banksters are holding BBB rated corporate bonds and could be further downgraded as the cataclysmic effects of the #Coronavirus 🦠 pandemic continues.

More investors have invested in riskier assets such as these corporate bonds for higher return on investment.

About $19 Trillion of global corporate debt is at risk of default if the pandemic persists.

A wave 🌊 of defaults would shake the global financial system leading to credit & liquidity crunch as well as layoffs.

Defaults would also hit banks and could lead to less lending.

Companies could find it more difficult to borrow during the period when they need it the most if the #Coronavirus 🦠 pandemic persists.

As POTUS 45 rightly said, this is not a financial crisis. However, the ramifications of the contagious 😷 spread of COVID19 🦠 could snowball into something worse.

Social distancing has led a drastic change in the way people eat outdoors, travel and relax.

Sporting events have been suspended. From @LaLigaEN , @premierleague @ChampionsLeague @EuropaLeague @MLS @NBA @F1 to music events such as @coachella

Some G8 economies were already slowing down before this Black Swan 🦢 appeared out of nowhere and tipped the scales ⚖️ to possible economic anarchy.

We can only hope and pray that this pandemic does not persist as a global recession looms if not abated.

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