Risk Is the New Black in World Turned Upside Down

8/7/2010

What is risky and what is safe? That has always been a crucial question for anyone working in the financial markets. Bankers provide their clients with an asset mix, tailored to suit the aging widow or the young entrepreneur. But what if everything you know about risk was suddenly turned upside down? In the last two years, all the stuff we thought was really safe and dull turned out to be dangerous. And the things we thought were risky ended up being quite reliable.

The United States government will never have another balanced budget again. Yes, you read that correctly. U.S. government finances have now reached a critical "tipping point" and things are going to spin wildly out of control from this time forward. Why? Spending on entitlement programs and interest on the national debt are now accelerating. Some time around 2020 they will eat up every single dollar of federal revenue that is brought in before a penny is spent on anything else. Of course the solution to all of this would be to radically cut entitlement programs, but no U.S. politician in his or her right mind would do that.

At the US Embassy in London, there is a waiting list that none of the officials likes to discuss. On the list are Americans hoping to give up their citizenship, as they seek shelter from the Internal Revenue Service. One lawyer fighting for her clients’ right to do so is Suzanne Reisman, a former civil rights lawyer, who is now a private-client lawyer in Mayfair, central London. “You make a lot of sacrifices when you have to pay US taxes and live outside the country for a long time. But you also make a lot of sacrifices when you give up your passport,” she says.

The International Monetary Fund (IMF) stress tested 53 large banking holding companies and published its findings last month. The report concluded that despite restoration of some stability, there remain certain important risks to the U.S. financial system and economy mainly coming from the real estate sectors.

Stack of Stuff:

When The Facts Change

Americans who swap passports

What A Difference A Decade Makes

Food stamp use hit record 40.8m in May

New claims for jobless benefits rise to 479K

Emerging Lessons on Fighting the Financial Crisis

Risk Is the New Black in World Turned Upside Down

Why The U.S. Will Never Have A Balanced Budget Again

IMF: U.S. Real Estate Sectors Could Bring Banking Crisis 2.0

Fannie Mae Seeks $1.5 Billion From U.S. Treasury After 12th Straight Loss

Click play button to listen to our most recent show.