The financial pipes might be clogging

During the 2008/09 banking and real estate implosion that almost sank the global financial system, the conduits that support the flow of funds to and fro between businesses, insurance companies, brokerage firms and banking institutions almost ground to a halt. Think of a sewer system stopping up in a high-rise hotel and what a cluster that would be. Instead of a stinky mess, when the financial money system stops flowing, problems quickly materialize. A blockage in this financial mechanism on a global or even national level can wreak havoc on the economy. In 2008/09, if it wasn't for the many (but debatable) actions of the Federal Reserve and the other central banks of the world, what would have happened would have been a heck of a lot worse than what did happen. Yeah, it was ugly, but it could have been uglier. Billions of dollars are electronically transferred daily between financial institutions and corporations in the course of their day-to-day operational financing. If the availability of these funds becomes problematic, the effects are immediate and can become very serious very quickly. It becomes a case where liquidity evaporates and within a short time, somebody doesn't have the cash to pay somebody else, and then that somebody doesn't pay the next guy, and down the line it goes. In the case of these major financial entities that all use this cash system, whether it's a hedge fund, a major bank, insurance company or stockbroker, anyone defaulting on a financial obligation can cause a major hiccup in this cash disbursement system. The too-big-to-fail problem comes into play very fast as the amounts in question are huge and often in the billions. Just one large institution getting into trouble and unable to meet its day-to-day obligations can cause huge ripples in this otherwise calm and functioning economic plumbing. More than a few times, when a problem arose in a firm's ability to pay, it brought the Federal Reserve (FED) into play, bailing out any institution that needed help to prevent a further spread of the event. The 2008/09 event we all remember so well was a classic example of the contagion brought on by a single failure causing a domino of failures within weeks of the first occurrence. We have had more than a few instances since 2008/09 that have required FED intervention providing freshly minted cash to prevent more of this deadly contagion, but it rarely makes the evening news. They don't particularly like to advertise things like that, don't ya know. Fast forward to today and another rumbling is disturbing the calm of this financial pool so many entities depend on. Enter Blue Owl Capital (OWL), an asset manager with about $300 billion under management. It trades in its own account, manages investor funds, is in the real estate market and lending business. Pretty typical stuff for large asset managing companies. Apparently, there may be liquidity problems afoot as OWL is rumored to be delaying or discounting redemptions and limiting withdrawals. Basically, investors may be having some trouble getting to their money. When that news hits the streets, it obviously sets the proverbial snowballs in motion as investors start to become more concerned about being the last one at the trough should the OWL situation accelerate. Delaying withdrawals or offering less than the full payback amount is the worst thing a financial institution can do. It's only a maneuver of last resort and indicates loans may be going bad or may not be liquid, redemptions may be accelerating as panic starts to grip investors, stocks they hold may be tanking or just not having enough cash to pay daily operations and withdrawals. None of it is good, obviously. If OWL's ship can't be quickly righted, withdrawals may accelerate even more, forcing OWL to liquidate more positions that may have to be sold at a loss or have early withdrawal penalties themselves. In conclusion, although many of these potential bailout candidates don't make the evening news, this one did, and now the financial community is circling the wagons as well as the sharks. It remains to be seen if a FED bailout is coming, but you can be sure they've been on the phone with more than a few somebodies. This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a BA in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. insurance services. Email: news@moneymanagementradio.com.