Fed Says No Financial Crisis Coming In Our Lifetimes

Fed Chair Janet Yellen says there is no financial crisis to worry about in our lifetimes. Why is she so confident? Do we believe it?

In late June 2017, the Federal Reserve Chairwoman spoke out from a London event, declaring it is unlikely we will see another financial crisis in our lifetimes. Her adamant bullishness on the strength of the system appears to rest on reforms that were instituted in response to the 2008 crisis, and recent stress tests on banks. These new stress tests pitted bank capital reserves against the potential for unemployment hitting 10% and trouble in corporate and commercial mortgage debt.

Experienced investors’ initial thoughts on this news may include:

1. Are we talking about the rest of Janet Yellen’s lifetime, or our children’s lifetimes too?
2. Why is it that big claims like this seem to come right before equally big dips?
3. A 10% unemployment rate isn’t that big of a stress test for a real crisis.
4. What about the current efforts to roll back all of those reforms?

Still, the Fed has backed up its bullishness with new interest rate hikes, and Mortgage News Daily is expecting another rate increase in December 2017.

While Donald Trump doesn’t appear to have made any real tangible changes yet, the Financial Choice Act could really alter the markets. Even if some of the major provisions of the act and some of the many underlying bills are enacted, Dodd-Frank would be shredded. Some banks may actually increase their capital reserves under the FCA. Others, though, worry that it invites more relaxed lending and in turn increases the risk of a repeat of 2008 in the near future. Even if the Financial Choice Act doesn’t happen, the current environment of bullish optimism is likely to help the economy keep growing, though at a more modest pace.

There are many reasons to be positive about the performance of real estate and mortgage markets ahead. Yet, even if we do face a new crunch, we are far better prepared to efficiently process distressed debt than before. There are opportunities in all phases of the market. It is just about being best positioned to benefit from them as investors.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Image by Gerd Altmann from Pixabay