London Irvine Report: Special Update 18/10/2025 A Credit Crunch? NDFI Frauds?.

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No amount of evidence will ever persuade an idiot

Mark Twain

Is the US economy about to suffer a credit crisis? Nobody knows yet, but fear is everywhere.

Who lent badly to whom and by how much on non existent or multi-hypothecated collateral? Over the next few weeks the US economy is about to find out.

For now the stock casinos are pretending, none of this matters, it won’t bust the Great AI miracle bubble.

I’m not so sure. Rampant fraud in the NDFI sector will sink many ships. Besides, Wall Street is long overdue yet another Wall Street scandal.

This time around, investors are focused on a specific type of lending made by banks to non-depository financial institutions, or NDFIs, as the source of possible contagion.

‘The tide went out’: How a string of bad loans has bank investors hunting for hidden risks

Published Fri, Oct 17 2025 2:47 PM EDT

Big banks including JPMorgan Chase and Goldman Sachs had just finished taking victory laps after a blockbuster quarter when concerns emerged from an obscure corner of Wall Street, sending a collective shiver through global finance.

Regional bank Zions late Wednesday disclosed a near total wipeout on $60 million in loans after finding “apparent misrepresentations” from the borrowers. The next day, peer Western Alliance said that it had sued the same borrower, a commercial real estate firm called the Cantor Group, for alleged fraud.

The result was a sudden and deep selloff among regional banks, drawing comparisons to the churn of the 2023 banking crisis that consumed Silicon Valley Bank and First Republic. This time around, investors are focused on a specific type of lending made by banks to non-depository financial institutions, or NDFIs, as the source of possible contagion.

“When you see one cockroach, there are probably more,” JPMorgan CEO Jamie Dimon said this week. “Everyone should be forewarned on this one.”

Concerns over credit quality had been simmering for weeks after the September collapse of two U.S. auto-related companies. JPMorgan, the biggest U.S. bank by assets, this week reported a $170 million loss tied to one of them, the subprime auto lender Tricolor.

But it wasn’t until a third case of alleged fraud around loans made to NDFIs that investors were jolted into fearing the worst, according to Truist banking analyst Brian Foran.

“You now have had three situations where there was alleged fraud” involving NDFIs, Foran said.

Dimon’s comments “really resonated with people who were like, ’Oh, man, the tide went out a little bit, and now we’re seeing who was lacking their swim trunks,” Foran said.

What are NDFIs?

The episode cast a spotlight on a fast-growing category of loans made by regional banks and global investment banks alike. Rules put into place after the 2008 financial crisis discouraged regulated banks from making many types of loans, from mortgages to subprime auto, leading to the rise of thousands of non-bank lenders.

Moving riskier activities outside of the regulated bank perimeter, where failures are backstopped by the Federal Deposit Insurance Corporation, seemed like a good move.

But it turns out, banks are a major source of funding for non-bank lenders: commercial loans to NDFIs reached $1.14 trillion as of March, per the Federal Reserve Bank of St. Louis.

Bank loans made to non-bank financial firms were the single fastest-growing category, rising 26% annually since 2012, according to the St. Louis Fed.

“The surge in NDFI lending was really because all these different regulations added up to say there are a bunch of loans banks can’t do anymore, but if they lend to someone else who does them, that’s OK,” Foran said.

“We really don’t know much about these NDFI books,” Foran said. “People are saying, ‘I didn’t know it was so easy for a bank to think they had $50 million in collateral and find out they had zero.’”

‘Overreaction’ or early?

Part of what’s spooking investors is that, while some of the loan losses disclosed have been relatively small, they’ve been near total wipeouts, said KBW bank analyst Catherine Mealor.

“NDFI lending, because of the collateral involved, typically has a higher loss rate, and the losses can come very quickly and out of nowhere,” Mealor said. “It’s really hard to wrap your mind around these risks.”

Mealor said investors have been inundating her with questions around the level of NDFI exposures in her coverage universe, the analyst said. Firms including Western Alliance and Axos Financial are among those with the highest proportion of NDFI loans, according to an August research note from Janney Montgomery.

Still, regional banks are benefitting from an improving interest rate environment and rising mergers activity, which underpin valuations, Mealor said, adding she thinks this week’s stock selloff was an “overreaction.”

“You want to avoid companies that show up high in the screen for NDFI loans,” she said. “There are plenty of high-quality companies in the KRX that are trading at a massive discount.”

How a string of bad loans has bank investors hunting for hidden risks

Dollar stumbles as investors worry over trade, US banks

17 October 2025

TOKYO/LONDON (Reuters) -The U.S. dollar headed on Friday for its worst weekly performance since July, as concern about trade tensions and signs of growing risk in regional American banks drove investors into safe-haven currencies like the Swiss franc and the yen.

Signs of weakness were also emerging in the U.S. economy, and because the federal government shutdown has choked off the release of key macroeconomic data, investors have less certainty than usual about what is happening on the ground.

The Swiss franc hit its strongest level in a month and the yen rallied although part of its rise was attributable to Bank of Japan Governor Kazuo Ueda's discussion of factors that could lead to a rate increase this month.

BULLISH SCENARIO FOR DOLLAR INDEX 'HARD TO FIND'

Concerns about trade, Fed independence and the U.S. shutdown are making the dollar vulnerable to the "debasement" trade, where investors seek assets that cannot easily be devalued, Pepperstone research strategist Dilin Wu said.

"It's really hard to find a bullish scenario for the dollar index," said Wu. "Instead of betting on any currency by a single sovereign credit, people are rushing into gold, cryptocurrency and other assets as a risk hedge."

The Swiss franc was one of the top-performing major currencies against the dollar, which slid 0.2% to 0.7914.

The dollar index, which tracks the U.S. currency against six of its counterparts, headed for a 0.7% slide this week - the largest since late July.

The dollar was also down 0.1% against the yen at 150.27.

----"Rising U.S.-China trade-war worries, concerns over U.S. regional banks - these are reminders for the market that, actually, it’s not quite as rosy as investors were pretending that it was," City Index strategist Fiona Cincotta said.

"There is definitely a safe-haven bias to trading ... in the equities market, S&P 500 futures are down 1.4%, you’ve got gold hovering around record highs and the Swissie outperforming. Everything about this is telling us it’s risk-off, safe-haven demand."

The euro was steady at $1.1687, as was sterling at $1.3439.

Fed Governor Christopher Waller said he is on board for another interest rate cut at the U.S. central bank's meeting later this month because of the mixed readings on the state of the job market.

Stephen Miran, the Fed's newest governor and an economic adviser to U.S. President Donald Trump, reiterated support for more aggressive rate cuts at upcoming meetings than the one favored by some of his colleagues.

Dollar stumbles as investors worry over trade, US banks

China Says the US Triggered Latest Trade Spat

October 16, 2025 at 9:50 PM GMT+1

As far as China is concerned, America started it. Earlier this week, US Treasury Secretary Scott Bessent blamed Beijing for the most recent blowup of ongoing efforts to resolve the trade war triggered by President Donald Trump. On Thursday, it was Wang Wentao’s turn: The Chinese commerce minister said recent escalations are a result of White House actions following talks in Madrid last month, blaming the “intensive introduction of a series of restrictive measures against China” for setting off the current spiral of threats.

Shortly after those negotiations led by Bessent and Chinese Vice Premier He Lifeng, the US commerce department widened the application of sanctions to companies affiliated with blacklisted Chinese firms. Beijing has justified its decision to tighten control of rare-earth elements as a defensive reaction, one that’s apparently put the US on the backfoot as Bessent floats trial balloons about a new truce.

Whether that cools things down remains an open question. On Thursday, Wang said the US measures “seriously harmed China’s interests and undermined the atmosphere of the bilateral economic and trade talks.”

There are more signs of those pesky cockroaches Jamie Dimon warned about. Two regional US banks just disclosed problems with loans involving allegations of fraud, adding to concerns that more cracks are emerging in the credit market.

Shares of Zions Bancorp plummeted after it disclosed a $50 million charge-off for a loan underwritten by its wholly-owned subsidiary, California Bank & Trust. Western Alliance Bancorp tumbled as well after it said it’s dealing with a borrower that failed “to provide collateral loans in first position.”

Western Alliance also has exposure to the collapse of auto-parts supplier First Brands Group, one of the recent implosions that have investors wondering if a cliff’s edge is near. And even if each of the above credit events is isolated, banks taking losses from bad loans are making headlines more often in the past two months, something that was turbocharged this week by the JPMorgan CEO’s bug alert. After the bankruptcies of First Brands and sub-prime auto lender Tricolor Holdings last month, Dimon’s bank wrote down $170 million and Fifth Third Bancorp wrote down as much as $200 million.

As we reported yesterday, Dimon’s foray into entomology earned him pushback from purveyors of private credit, the $1.7 trillion market that’s been all the rage of late. But a group of academics appear to agree that the easy money dreams of private credit are, by and large, exactly that.

For the past decade, the private credit industry has ridden high on a swell of inflows built on the premise it will deliver annual returns close to 10% through bear and bull markets, all while keeping defaults and volatility low. But in research published in the Journal of Private Markets Investing, academics contend that the asset class produces limited alpha, or extra compensation over market benchmarks.

Claims of market-beating, stress-free returns are “illusory,” said experts from Johns Hopkins University and University of California, Irvine. They argue that direct lenders offer investors marginal returns compared with more transparent and widely-traded leveraged loans—and less in some cases.

China Says the US Started the Latest Trade Spat: Evening Briefing Americas - Bloomberg

In other news, when AI goes wrong it really goes wrong. Get ready for a lot more of AI going wrong in many different sectors.

Judge blasts lawyer for using AI after he cited ‘entirely fictitious’ cases in asylum appeal

17 October 2025

An immigration barrister could face a disciplinary probe after a judge ruled he used AI tools such as ChatGPT to prepare his legal research.

A tribunal heard that a judge was left baffled when Chowdhury Rahman presented his submissions, which included citing cases that were “entirely fictitious” or “wholly irrelevant”.

A judge found that Mr Rahman had also attempted to “hide” this when questioned, and “wasted” the tribunal’s time.

---- It was then appealed to the Upper Tribunal, with Mr Rahman acting as their barrister. During the hearing, he argued that the judge had failed to adequately assess credibility, made an error of law in assessing documentary evidence, and failed to consider the impact of internal relocation.

However, these claims were similarly rejected by Judge Mark Blundell, who dismissed the appeal and ruled that “nothing said by Mr Rahman orally or in writing establishes an error of law on the part of the judge”.

However, in a postscript under the judgment, Judge Blundell made reference to “significant problems” that had arisen from the appeal, regarding Mr Rahman’s legal research.

Of the 12 authorities cited in the appeal, the judge discovered upon reading that some did not even exist, and that others “did not support the propositions of law for which they were cited in the grounds”.

Upon investigating this, he found that Mr Rahman appeared “unfamiliar” with legal search engines and was “consistently unable to grasp” where to direct the judge in the cases he had cited.

Mr Rahman said that he had used “various websites” to conduct his research, with the judge noting that one of the cases cited had recently been wrongly deployed by ChatGPT in another legal case.

Judge Blundell noted that, given Mr Rahman had “appeared to know nothing” about any of the authorities he had cited, some of which did not exist, all of his submissions were therefore “misleading”.

“It is overwhelmingly likely, in my judgment, that Mr Rahman used generative Artificial Intelligence to formulate the grounds of appeal in this case, and that he attempted to hide that fact from me during the hearing,” Judge Blundell said.

“He has been called to the Bar of England and Wales, and it is simply not possible that he misunderstood all of the authorities cited in the grounds of appeal to the extent that I have set out above.”

He concluded that he was now considering reporting Mr Rahman to the Bar Standards Board.

Judge blasts lawyer for using AI after he cited ‘entirely fictitious’ cases in asylum appeal

Global Inflation/Stagflation/Recession Watch.

Given our Magic Money Tree central banksters and our spendthrift politicians, inflation now needs an entire section of its own.

Gold rallies beyond $4,300/oz, set for best week in five years

17 October 2025

(Reuters) -Gold notched a new high above $4,300 an ounce on Friday and was poised for its best week in five years, as signs of weakness in U.S. regional banks, global trade frictions and expectations of more rate cuts sent investors flocking to the safe-haven metal.

Spot gold was up 0.3% at $4,336.18 per ounce, as of 0233 GMT, after reaching a fresh high of $4,378.69 earlier in the session. U.S. gold futures for December delivery jumped 1% to $4,348.70.

Bullion has risen about 8% so far this week in what would be its best week since March 2020, notching a record high in each session.

Spot silver fell 0.7% to $53.86 per ounce, but stayed on track for a weekly gain. Earlier in the session, prices reached a record high of $54.35, tracking the rally in gold and a short squeeze in the spot market.

"(For gold) $4,500 could arrive as a target perhaps sooner than expected, but much may depend upon how long concerns about U.S.-China trade and the government shutdown linger over the market for," said KCM Trade Chief Market Analyst Tim Waterer.

China levelled fresh accusations against the U.S. of causing panic over its rare earth controls, while rejecting calls to reverse export curbs.

Meanwhile, Federal Reserve Governor Christopher Waller voiced support for another rate cut due to labour market concerns.

Investors are expecting a 25-basis-point reduction at the Fed's Oct. 29-30 meeting and another reduction in December. [USDIRPR/]

Elsewhere, Wall Street closed lower on Thursday, with signs of weakness in regional banks spooking investors already on edge over U.S.-China trade tensions. [MKTS/GLOB]

"The flare-up in U.S. regional bank credit concerns has given traders one more reason to buy gold," Waterer said.

Non-yielding bullion, which tends to do well in a low interest rate environment, has gained more than 65% year-to-date, driven by geopolitical tensions, aggressive rate-cut bets, central bank buying, de-dollarisation and robust exchange-trade fund inflows,

On the geopolitical front, U.S. President Donald Trump and Russian President Vladimir Putin agreed on Thursday to another summit on the war in Ukraine.

Gold rallies beyond $4,300/oz, set for best week in five years

Technology Update.

With events happening fast in the development of solar power and graphene, I’ve added this section.

More on a problem that will only get worse with each passing year. Approx. 7 minutes.

Tesla Toxic Vapors Sent Firefighters to the Hospital

Tesla Toxic Vapors Sent Firefighters to the Hospital

Next, the world global debt clock. Nations debts to GDP compared.

World Debt Clocks (usdebtclock.org)

Exponent Calculator

Enter values into any two of the input fields to solve for the third.

Exponent Calculator

This weekend’s music diversion. Vivaldi’s other Gloria. Approx. 3 minutes.