See more This is Money on Google -save us as a Preferred Source The long, hot summer this year has brought a wave of nostalgia for 1976, when the nation tried to forget its economic woes and sang along to Elton John and Kiki Dee’s hit Don’t Go Breaking My Heart.
It is more recent, less rose-tinted memories of the summer of 2007 that are worrying me.
In particular, the debacle at hedge fund Situational Awareness seems an ominous reminder of the collapse of two Bear Stearns hedge funds in July that year, which turned out to be a harbinger of the Great Financial Crisis of 2008.
The two hedge funds borrowed heavily in order to bet on mortgage-backed derivatives. Their collapse led to the demise of the Bear Stearns parent bank, which was bought in a rescue deal by Jamie Dimon, boss of JPMorgan.
This time, legendary hedge fund manager Ken Griffin’s Citadel has ridden to the rescue of Situational Awareness, which was making highly-leveraged bets on AI, the current craze.
24-year-old Leopold Aschenbrenner launched the hedge fund 2024
Wall Street regulator the Securities and Exchange Commission has just subpoenaed some of the Wall Street banks funding those bets. The parallels should not be stretched too far and certainly we have to hope this is not an augury of doom.
But why were Wall Street’s finest enabling epic gambles by a hedge fund founded by a 24-year-old ex-AI researcher?
Here’s another ominous thought. In 2008, there was a high degree of international cooperation between central banks and governments, with the US playing a pivotal role. The current occupant of the White House seems incapable of constructive relationships and is a promoter of chaos, not calm.
He wantonly alienates even the friendliest of allies, Canada, with his tariff onslaughts. He has provoked Beijing with his latest threats of sanctions on Iran and its trading partners.
Investors are heading into assets such as bitcoin and gold in a so-called ‘debasement trade’, signifying loss of confidence in the dollar and a fear of inflation. Worries are bubbling up over rising US government debt, unsustainable fiscal policy and there are concerns the Federal Reserve’s independence is under threat.
Which is why there is such deep scepticism about US Treasury Secretary Scott Bessent’s efforts to keep interest rates low by buying up long-term bonds. Can Bessent beat the bond markets? Very probably not. Back in 1992, the current US Treasury chief was working for George Soros, the man who broke the Bank of England on Black Wednesday, so he already knows that perfectly well.
Stars and yikes
Natwest’s move back into the US is a modest one, so it is no doubt irksome to be suspected of plotting a Fred Goodwin-style folie de grandeur.
Observers can hardly be blamed for it, though, considering the track record. RBS, the predecessor of today’s NatWest, bought a string of US banks through its New England offshoot Citizens in the 1990s and early 2000s.
Goodwin, the chief executive who drove RBS to the brink of ruin, acquired Greenwich Capital, one of the big casualties of the US sub-prime meltdown, through RBS’s takeover of NatWest.
It was the deal for Netherlands bank ABN Amro that was the catalyst for RBS’s downfall. Yes, this was all quite a long time ago now. Paul Thwaite, the current chief executive, bears very little resemblance to Fred the Shred.
But with a horrible history like that, investors have a right to be wary.
NEET crisis
Unsurprising that a third of employers have cut back on entry-level jobs for those aged 16-24 in the past 12 months.
Labour elder statesman Alan Milburn is due to publish his final report on young people not in education, employment or training (NEETs) next month. Unless he addresses the ballooning costs and risks to employers of hiring a young person, it is unlikely to have much effect.
The cost of employing a 21-year-old is up 27 per cent in three years and 86 per cent in a decade, according to calculations by entrepreneur and NEETs campaigner Christopher Nieper.
New worker rights mean taking on a youngster is an expensive gamble many employers feel it is hard to afford. Chancellor John Healey should cut employers’ National Insurance contributions in the Budget, as the CBI and others have said. He should also introduce a skills tax incentive to encourage firms to hire apprentices.
As for the NEETs themselves, they face despair by a thousand bots as their applications are thrown out by AI.
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