"Crisis, what crisis?," says Trump Administration. Which makes me say "Uh oh."

Is this supposed to be reassuring? Because it wasn't.

Today I convened individual calls with the CEOs of the nation's six largest banks. See attached statement. pic.twitter.com/YzuSamMyeT

— Steven Mnuchin (@stevenmnuchin1) December 23, 2018

If you're holding phone calls from your vacation in Cabo with bank CEOs on a Sunday 2 days before Christmas, THAT'S NOT NORMAL!

Wall Street certainly was not reassured, especially with no trading tomorrow to make people want to be caught short if more bad things strike in the next 36 hours. The DOW dropped another 653 points today, bringing the total loss over the last 3 weeks to more than 4,000 points.

We'd already seen mumblings before the market tanked about the high level of corporate leverage that was at risk if interest rates went up and/or markets tanked.

They were once models of financial strength—corporate giants like AT&T Inc., Bayer AG and British American Tobacco Plc.

Then came a decade of weak sales growth and rock-bottom interest rates, a dangerous cocktail that left many companies feeling like they had just one easy way to grow: by borrowing heaps of cash to buy competitors. The resulting acquisition binge left an unprecedented number of major corporations just a rung or two from junk credit ratings, bringing them closer to a designation that historically has made it much more expensive to fund daily business and harder to navigate economic downturns.

In fact, a lot of these companies might be rated junk already if not for leniency from credit raters. To avoid tipping over the edge now, they will have to deliver on lofty promises to cut costs and pay down borrowings quickly, before the easy money ends....

Companies have had little reason to keep their credit ratings high during a decade of easy money, as investors worldwide shifted trillions of dollars into riskier bonds in search of higher yields. A company that was looking to borrow debt for seven years would pay just 0.5 extra percentage point in interest annually if it were rated in the BBB tier instead of the A tier, according to Bloomberg data. That amounts to just $5 million more a year for every additional $1 billion the company borrows. In October 2011, that difference would have been almost twice as high.

The result has been a surge in debt issuance in the lowest rungs of investment-grade—the biggest share of it driven by corporate acquisitions. There’s now about $2.47 trillion of U.S. corporate debt rated in the BBB tier, more than triple the level at the end of 2008. It now makes up a record 49 percent of the investment-grade bond market and has eclipsed the entire U.S. junk bond market, according to Bloomberg Barclays Index data. In 1993, for example, just 27 percent of blue-chip corporate bonds were rated at the BBB tier.

It brings back this great scene from "The Big Short", which was about the last time we had overleveraged companies and borrowing, and the credit agencies covering up just how shaky things really were. (I also love the little details, like when Carell says "That's very racist" or Gosling is making his presentation and says "Where's the trash?")



We haven't seen the consumer slow down or jobs start to get shed with the market imploding over the last few weeks, so we're not seeing the jenga pile turn over yet. But instability reigns in DC on all fronts, and combine that with the lower 401ks and the shock that middle-class and upper-middle class people will get when they start writing checks to the IRS due to fewer people needing to take housing and SALT deductions and...yikes!

When the Wall Streeters in charge of the Treasury and Trump Administration say that "we don't see any problems with the banks and people shouldn't worry", that tells me there are problems with the banks and we should probably worry.