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Opinion
Bad debt ‘cockroaches’ signal new threats to the global economy
The world appears to have forgotten a key lesson of the global financial crisis: some problems were spotted earlier but sidelined
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James David Spellman, a graduate of Oxford University, is principal of Strategic Communications LLC, a consulting firm based in Washington, DC.
JPMorgan CEO Jamie Dimon’s remark that “when you see one cockroach, there are probably more” is a blunt reminder of the global financial crisis in 2008. At the time, a flood of bad mortgages had revealed a tenuous labyrinth of complex, highly vulnerable financial products that saw some US investment banks collapse and equity markets struggle for six years to recover losses.
Evidence is mounting that we are approaching danger again, with revelations of bad debt exposure for regional and investment banks as a consequence of two bankruptcies. Auto parts maker First Brands Group filed for bankruptcy protection last month with US$11.6 billion in liabilities, while car dealership Tricolor did likewise with more than US$1 billion in liabilities.
It is true that US markets bounced back a day after some banks’ stocks suffered their steepest single-day losses in more than six months on October 16. Wall Street’s fear index, the CBOE Volatility Index, shook off the anxiety after sharply jumping the day before.
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