The 'shadow banking' crisis that could 'destroy the Trump presidency'

There is a rising crisis few know about that has the power to “destroy the Trump presidency” and upend the MAGA movement. According to Telegraph financial analyst Matthew Lynn, trouble within the so-called “shadow banking” industry would result in such a dramatic economic catastrophe that President Donald Trump would be forced to take actions unpopular with his base, or risk a "major recession."

“Shadow banking” is a practice in which non‑bank intermediaries provide loans outside traditional banking regulation and oversight. These loans tend to be high-interest and high-risk, and inevitably, many of them turn out to be uncollectable. In recent years, the impact of these bad loans have accumulated, and this poorly regulated industry — which is now worth trillions — is beginning to look so shaky that relevant credit institutions have begun limiting investor withdrawals to stave off a bank run. At the same time, Treasury officials have begun holding meetings to assess the danger of an economic collapse within the sector.

“A crash,” writes Lynn, “would be a catastrophe for Donald Trump.” Not only would the ensuing economic pain hurt Trump’s presidency, but it would likely force him to dole out bailouts to Wall Street that would enrage MAGA.

Bailout packages have been the go-to solution in similar situations in the past, such as during the Great Recession of 2008 and the Silicon Valley panic of 2023. But many MAGA leaders — from Trump to Vice President JD Vance to ex-Trump ally Marjorie Taylor Greene — have made populist arguments against them. "The Tea Party movement,” explains Lynn, “the forerunners of MAGA, had its origins in opposing the 2008 to 2009 bailouts.”

“Against that backdrop,” writes Lynn, “the White House is going to find it very hard to start writing out cheques for billions of dollars to rescue a private credit fund that is about to collapse.”

This on top of yet another unpopular war in the Middle East and skyrocketing costs of living — two central MAGA concerns — will spell trouble for the Trump coalition.

At the same time, however, the imminent collapse of shadow banking would likely demand that Trump take such action.

“The loans at stake have been advanced to manufacturers, distributors, retailers and leisure chains,” explains Lynn, “and if they all get called in, those companies will go bust and hundreds of thousands of jobs will be lost.”

That leaves Trump with two choices: “abandon his base,” or “let the shadow banking industry collapse, and risk a major recession.”

“Either way, he will be in deep political trouble,” says Lynn. As the crisis worsens, “It may well destroy the Trump presidency.”