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True Size of the Shadow Banking System Revealed (Spoiler: Humongous)
KentuckyFC writes "The banking system is closely regulated and monitored by central banks and other government agencies. But it has become common practice for banks to get around this by doing business in ways that don't show up on conventional balance sheets. This so-called shadow banking system is thought to be huge, but nobody knows exactly how big. Now three econophysicists have discovered that the size distribution of the world's largest financial firms significantly differs from the size distribution of smaller ones or indeed non-financial firms. And they hypothesize that the difference is the result of the hidden transactions that make up the shadow banking system. By this new measure, the shadow banking system has grown dramatically since the financial crisis and was worth over $100 trillion in 2012, significantly more than had been thought and more even than the GDP of the entire planet. Nothing to worry about, then."
AHAHAHAHA Stop it! Yer killing me!
I did my masters in non-Newtonian budget surpluses.
Those shining brand new banknotes need to accumulate somewhere, preferable to those that would be impacted the most in absolute value by the ensuing inflation.
You wouldn't expect "the 1%" to take the hit, that's what the "middle class" is for. The trickle economy is still operating, except that now it's no longer the "value" that trickles, it is the "value depreciation".
Questions raise, answers kill. Raise questions to stay alive.
No surprise here. What FED was doing for the last couple decades?
Printing the money and printing and printing and printing and printing and printing and printing and printing and printing and printing and printing and printing
All these cries about savings and cuts are pathetic.
There is enormous amount of money in circulation, so much that economic bubbles just put little dent in it.
All contributions should be tax deductible.
“He’s not deformed, he’s just drunk!”
"Shadow", that sounds really scary. I don't like scary things like shadows and terrorists.
Let's give the government a lot of power to regulate cash flow so they can protect us.
If video games influenced behavior the Pac Man generation would be eating pills and running away from their problems.
There are surprisingly people in other parts of the world than American (IKR!!), but even if you take the global working population that still comes to around $40,000 for every worker per year. So, still calling bullshit.
and more even than the GDP of the entire planet.
The size of the shadow banking system may be worrisome (I guess), but banks hold assets, whereas GDP measures income. It would be extremely surprising if the GDP of the world were more than its income.
Incidentally, if you are upset about the 'shadow banking system' or the name 'shadow' scares you, money market funds are part of the shadow banking system. So are ETFs. So it is very possible that you are part of the SBS, since normal people invest in these kinds of things.
In general the SBS only matters because tax payers are committed to bailing banks out if they lose too much money there. If we followed Paul Volcker's advise and made a rule that, "any bank that is too large to fail is too large to exist. Any bank that receives money from the federal government will be broken up in pieces and sold," then it would solve a large portion of these problems. Make a rule that you can clawback salaries and bonuses from execs who made very very bad decisions, and that will solve another large portion of the problem.
As it is now, all the incentives are aligned to ensure another financial crisis, whether we have a shadow market or not. Focus on fixing the incentives, focus on smaller details. But we won't focus on changing the incentives as long as the administration continues to keep stooges from the financial industry in his cabinet.
"First they came for the slanderers and i said nothing."
There is a guy in a corner office somewhere that is apparently making my $40k share of the underground banking economy.
I would guess to say he's also making the $40k share of many most of the people in my 5 square miles as well.
An investor in a bank, or a purchaser of A-rated securities offered by that bank, may not be aware that there are unregulated, undocumented liabilities held by that bank, which, were they to go sour (see "Credit Default Swap"), could cause the bank to collapse.
If you knew that your bank was involved in large, unregulated transactions worth more than the bank's holdings, would you continue to do business with them?
Mission: To provide products that consume time and energy as entertainingly as permitted by the laws of thermodynamics.
You thought of that, but not of Psychohistory?
Hari Seldon would be very disappointed in /. today.
The guy who said the election was rigged won the presidency with the second-most votes.
And they hypothesize
In other words they are making this shit up for some unknown reason.
In his Principia, 2nd ed (published 300 years ago in 1713) Isaac Newton made some pithy comments about this sort of baloney.
"I have not as yet been able to discover the reason for these properties of gravity from phenomena, and I do not feign hypotheses. For whatever is not deduced from the phenomena must be called a hypothesis; and hypotheses, whether metaphysical or physical, or based on occult qualities, or mechanical, have no place in experimental philosophy. In this philosophy particular propositions are inferred from the phenomena, and afterwards rendered general by induction."
So really there is nothing to see here. Just move along now.
At what point can we end the delusion that fiat currencies are worth anything at all?
Let's just go back to bartering. How many chickens do I need to give my Cox Cable for my internet access?
We don't have a state-run media we have a media-run state.
Other than the tens of millions who are upside-down on their house loans, or who have already lost them; other than the entire middle class, who have had stagnant wages for the last 40 years, no, no-one at all. Everything is lollipops and unicorns when the 0.1% are allowed to "trickle down"* on the rest of us.
*
An investor in a bank, or a purchaser of A-rated securities offered by that bank, may not be aware that there are unregulated, undocumented liabilities held by that bank, which, were they to go sour (see "Credit Default Swap"), could cause the bank to collapse.
I thought everyone knew these ratings were bullshit.
If you knew that your bank was involved in large, unregulated transactions worth more than the bank's holdings, would you continue to do business with them?
Well, this presumes that I am doing business with them in the first place, but I would say that this information wouldn't change my mind, because I just assumed nearly everything the banks did was not actually regulated anyway. Yes there are bank regulators, but they don't really understand how anything works, nor do the banks for that matter. This might be pretty scary for the banks if they weren't able to get taxpayers to pay their losses. It also might cause regulators to start shutting all these banks down if their bosses weren't completely in the pockets of the banks.
Hell even I have my money in a bank. I basically dumped almost all my money into a house because I don't trust banks, but the money I have left over is in a bank. The Federal reserve has made it so that the only thing dumber than putting your money in a bank is not putting your money in a bank. They basically force everyone to become irresponsible investors or they confiscate your money through inflation. It's really quite an ingenious system, but it sucks for people who want to play it safe. Then again life sucks for people who want to play it safe.
Buy a couple dozen senators, just like anybody else. You can get a discount price if you're a Christian Armageddonist, or willing to go along with them.
We have two intermingled crises - governmental corruption on a global scale, administered and centered in the USA, and of course the failure of the hereditary ruling class to build anything resembling a sustainable economy.
That article is weird. But then, so is the site. In the middle of the article, there are ads for other articles:
New Healing Mechanism Closes Wounds By Up to 50 Percent in 30 Seconds -- And Leaves No Scar
Universe May Contain "Tardis-like: Regions of Spacetime, say Cosmologists
Reliable source problem here.
Anyway, their claim is that, based on Zipf's law, there must be some "long tail" of unknown small financial institutions which have vast but uncounted assets. No way. There's halawa, Indian gold merchants, and Bitcoin, but together they don't add up to one of the big banks.
"It is in the nature of markets to move money from the many to the few."
The page is down, so hopefully someone can explain: how can the GDP of a system which is itself only a fraction of the planet, exceed the value of the planet?
If, as I suspect, this is calculated by totaling transactions alone - ie if I sell you an apple for $1, and then buy it back for $1, we've just added $2 to the total GDP of the system...well then my next question is why we even pay attention to such a worthless number in the first place?
-Styopa
Your understanding of shadow banking is wrong. That is precisely the reason a bank called "Wachovia" doesn't exist anymore.
Credit default swaps were a major cause of the domino like collapse of financial institutions in 2008 that required a government intervention of unprecedented size and scope. CDS's are a large part of the shadow banking system, they are black boxes to regulators who have no ability to regulate the market or ability to model the effects of problems in the market.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
We are ALL being harmed by the vicious hoarding of capital and wealth by a select group of individuals. Things like this are a major driving factor in poverty which is directly correlated to higher rates of crimes both violent and non-violent. Don't like your car being broken into? Don't like getting mugged? Don't like not being able to go to certain cities or areas of cities around the world? It is directly related to the fact that the global banking industry is moving wealth our of the hands of the many to the hands of the few at a pace never seen previously in recorded human history.
I got here through a series of tubes
The banker initiation involves kicking a puppy and stealing a little old lady's pension check.
The cow says "Moo." The dog says "Woof." The Timothy says "Thanks, valued customer. We appreciate your input."
You are completely right – it is the other people who are confusing you. “Shadow Banking” is when non-banks, such a pension funds and money markets provide funding for lending instead of the banks.
Credit Default swap is a bad example. If it is held by the bank then it is on the books. It might be mispriced but that is another issue.
Commercial paper is the classic example. Companies go out into the market and borrow money for less than 270 days. The normally sell to money market funds and the like. Banks help in issues and selling the paper. It is off the books but it is lending. A lot of firms were borrowing lots of money like this because it was cheap. And at the end of the 270 days you just rolled it over. When the financial crisis hit nobody wanted to buy anything so you could not roll over your paper. A lot of good companies had to scramble.
Asset Backed Securities might be better. A bank (or GE, Target, or anybody selling almost anything) has 100m in loans. They then package those loans into a bond and sell 90m of that bond. They sell mainly to pension funds. Now the bank only has 10m on the books. This keeps leverage low and regulators happy. However now they are dependent on the market to buy their bonds. If they can’t sell their bonds then they can’t lend.
Agreed, we want:
About your assertion that "These people are only in power because _we_ allow them to be" ... your heart is in the right place, but my head says otherwise. I wouldn't say that the powerful are powerful because we *allowed* them to be -- that overstates how much power *we* really have to prevent the concentration of power.
The powerful either have power to begin with, or they take it. Either way, they won't give it up, and if you try to take it from them, they will fight you. Since they have power -- and I don't -- they will tend to win. Indeed, because I believe they will win, I don't even begin.
For everyone today who says "Bad Guys run the world, let us liberate ourselves from our corrupt overlords", I remind you: we said the same thing in the nineties, and the eighties, and the seventies, and the sixties. And the thirties. And the teens. And the eighteen-nineties. And so on -- the American Revolution, for example.
I'm not saying "Give Up" -- but let's not comfort ourselves with false optimism. If you declare revolutionary intent, do so in pragmatic terms, with specific achievable goals. No idealism: a successful revolution demands hard-headed realists.
-kgj
From their site
1.18% through October 31, 2013
So you still have roughly a -8% ROI through these bonds if you are going by real inflation figures. So how exactly are these protected from inflation?
Hear hear, another scam from your federal treasury and your not-so-federal central bank.
The under-the-table business-to-employee market is nothing compared to the $8.3 Quadrillion in unfunded pension liabilities. We'll need 221 Earths to pay that off.
Once some alien civilization discovers the disk on the Voyager probe the RIAA will be able to sue the entire Galactic Federation for copyright infringement, so that should be covered.
Any insufficiently advanced magic is indistinguishable from technology.
According to this web site, there's $228 trillion in derivatives. I didn't believe that number at first, but then I checked the source of the data and it comes from the FDIC (Schedule RL-C). Oh, and that data was for the end of the 2011 calendar year. Anyone wanna take bets that the number was much higher for 2012 and will be even higher in 2013? Don't worry, though - I'm sure the banks aren't playing fast and loose and we have absolutely nothing to worry about.
The banker initiation involves kicking the old lady's puppy and stealing the little old lady's pension check. (ftfy)
Life is a great ride, the vehicle doesn't matter
It's a term that attempts to distinguish between economists who study monetary fictions and those who study reality based on measurement of resources.
Traditional economists of all schools practice "econo-fantasy" and almost universally support the making of money out of money. This is why current-day monetarism bears no relationship to the physical resources of the planet, and why financial institutions continue to profit despite the planet being in a death spiral.
Lacking even a vestigial brain cell, the practitioners of econo-fantasy don't recognize any such distinction of course.
You sir, are a fucking moron and don't really deserve a response farther than this.
I got here through a series of tubes
You ever play the tabletop game Jenga? You know, the one where you pull blocks from the bottom and stack them on top?
Well, try to think of the economy as a big ass game of Jenga, with the banksters and their Smaug-esque cash hoards at the top, and all us regular folk making up the bottom; just like the game, unless you leave yourself a strong, solid foundation, only so many blocks can be pulled from the bottom before the whole thing comes crashing down.
There's no logical reason any individual person should have billions of dollars of personal wealth; Especially with an economy in the shape ours (USAians) is in right now.
Actually, that gives me an idea for a bumper sticker: You become a millionaire by spending money; you become a billionaire by hoarding it.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Meanwhile, back in real reality, those of us who understand statistics have figured out that you can't just take a couple of data points, draw a liner regression, and assume your claims hold true in all cases, particularly when there are other well-known data points that contradict them. In English: Just because making a communist dictatorship somewhat less communist is good for their economy, it doesn't follow that eliminating all regulation in an already capitalist economy will be beneficial.
The countries that do the worst economically are the ones, as you said, with the most strictly controlled economies. The ones that do the best are the ones that have controls to prevent the excesses of capitalism and provide a social safety net while still allowing the free market to drive the economy.
If you take a look at libertarian paradises like Hong Kong, you'll notice that, while the mean income is very high, the median income is actually fairly low, due to a very uneven distribution of wealth. In these situations, you end up with a few people at the top who have more money than they know what to do with, and everyone else on the bottom struggling to get by. This is the direction the United States is headed.