In 2008, it was subprime mortgage; in 2026 it could be subprime auto loans

Will we still be dancing when the music stops as Citigroup and UBS were in the autumn of 2007. Even my friends dissed me when I predicted a global financial crash as early as January 2007, but I track credit cycles like a bloodhound and it flashed the mother of all distressed SOS’s as it does now. In 2007, the trillion dollar daisy chain of subprime mortgages blew up Wall Street, froze the offshore wholesale bank funding markets where UAE banks had increased their borrowing by 10X to finance the crazy 30% rise in spec development/construction loan books. So to me it was a matter of simple arithmetic that subprime would gut Wall Street and trigger the biggest bank failures in history.

The Citi never sleeps was the tagline of a 200 year old, aggressive, retail bank that sold loans as if they were McDonald Happy Meals all over the world as it does now. The American taxpayer paid the price when this $2 trillion go-go credit monster was nationalized by Uncle Sam and the shareholders including several top GCC royals and sovereign wealth funds lost 99% of their money. I know, I was the CIO of a royal investment office. I was there.

My old friend Dr. Pippa Malmgren, has a Yale doctorate and was President George W. Bush’s Special Assistant for international banking in the 2008 White House. She engineered the then secret $29 billion NY Fed swap line to the SNB in Basil, that enabled UBS to survive after its Chairman and 2500 “risk managers” had gambled $55 billion of bank capital in a failed bid to become an Alpine Goldman Sachs, which they will never be as the Swiss have Toblerone, Fondue, cuckoo clocks and kirschwasser in their genes.

I remember one pompous Geneva bankster telling me with a straight face, we are the world’s largest asset manager, we have 150 years of history, we are super conservative, nothing will happen to us, when I informed him I was short UBS. Yet hundreds of families in the Middle East were wiped out when they made the fatal mistake of trusting UBS to manage their wealth or accumulated the doomed bank shares, which lost 98% of their value in the GFC. Grutzi Marcel Ospel und Herr Wuffli. Nothing has changed, at least the Swiss bankers I dealt with in 2008 were Swiss. Ok Sergio was from Ticino, dove si parla italiano. Yet, go to UBS Dubai now and the DIFC platform is manned and womened by a hundred Indians, all private bankers, dialing for petrodollars in the Gulf jaldi jaldi. It is all, come on Barbie, let’s go party from the ancient land that gave us Yes Bank and Rakhi Sawant’s Silicon Valley Confessions.

Now, the dance of death in global finance began last week again, this time the music has stopped for Joe and Jane Sixpack as subprime Ohio auto lender and a dodgy Michigan leveraged buyout financier funded by Wall Street bank capital just went kaput, Peekaboo Finance 101. Note that mighty Citigroup shares have plunged from $104 to $97 in only three sessions. I know, I keep writing love letters (put rights) on Citi to Jane but she just dances around our fave tree and whispers “nahi, nahi, abhi nahi”. Jane no longer has time for this Tarzan because the music has stopped.

The billions that vapourised when First Brands and Tricolor went belly up last week are only the tip of a $2 trillion iceberg that Jamie Dimon, the Hellenic philosopher of our times calls a timebomb that just exploded. In banking, I learnt the hard way that only the king of kings on Mount Olympus has the luxury to tell the truth because when lies rule the world, then the act of telling the truth is ipso facto a subversive act. As the little boy said, uncle-uncle, Emperor Big Daddy wears no clothes.

Chuck Prince and Marcel Ospel were naked in 2008 when Zeus made sure that hubris turned to nemesis. Who remembers the Gorilla at Lehman, Gutfreund at Solly, Ace at the Bear and suntan Angelo at Countrywide? I do, they were the idols of my misspent youth. Who studies the lessons of the collapse of the Banco Medici in Renaissance Florence? I do, as I am obsessed with the life of Cosimo, Lorenzo, Peitro, the two Medici Popes and the two Medici Queens of France (both evil). Not even the Rothschilds and the Morgans managed one Pope and one Queen though the Parsis of Zanzibar gifted our world the ultimate Queen, apno King Freddie Mercury.

I have been warning for the past year that a $3 trillion daisy chain of consumer credit is on the precipice of a historic meltdown that will make 2008 seem like a cake walk. Bank funding markets will freeze. Stock market bubbles will go bust. Oil will collapse. In July 2008, Brent was $148, six months later it was $35 and would have been $15 if Saudi Arabia had not engineered the biggest output cut (4.2 MBD) in the history of OPEC. History never repeats but it always rhymes as Mark Twain, a Series Seven certified wealth manager at Mother Merrill warned us more than a century ago. So what do Dubai house prices and off plan tulips have to do with Ohio auto lenders and Michigan LBO con artists? Don’t ask me as I can barely differentiate between an LBO and BO, the Tricolor makes my heart skip a beat on Bastille Day and Republic Day (Jan 26th) at Shah Jahan’s Red Fort.

Mark my words, Wall Street’s dance of death will send global shock waves and trigger another property market free fall from current obscene vals. The laws of economics, let alone gravity, are not suspended beyond Business Bay!