Today’s economics are not for the timid. Above and beyond knowing the basics of how money works, there is another layer which needs to be fathomed. That layer is called by many shadow banking.
In the case of knowing about the world of shadow banking, sadly, ignorance is not bliss
The author was fortunate to have been in banking in the mid 90s. That particular banking group was very concerned. It was very clear that swaps and derivatives could cause a financial meltdown. The underlying concern was that greed alone would drive the industry into wilder and wilder financial instruments with no underlying value. It did come to pass. As early as July 2007 the auction system for these kinds of instruments started to fail. Financial institutions backed away from taking on these “same as cash” instruments.
For the bankers the bigger fool theory was the rage by then. Systematically, the institutions such as Merrill Lynch, and Wachovia Securities dumped millions of dollars of these into the hands of unsuspecting companies, and even retirees to get them out of their holding before the wheels fell totally off the cart.
When the auctions failed totally in Mid-Feb 2008 300 billion dollars in “same as cash” became illiquid. That is to say they about as far from “same as cash” as you can get.
When the CDOs froze, retirees among others found their economic lives were at a standstill. Complaints poured into the Office of Financial Regulation.
The players in the industry feigned innocence. The investigations continued. In the end many small investors got back their principal at least.
The press ignored the story. It must be a coincidence that the wrong-doers were also major sponsors.
It took the total melt-down in September 2008 to get the press to cover the issue.There has been more than a little speculation that patronage by Wall Street of the major media outlets was the censoring influence on the media. The appearance of the Bernanke and Paulson in Congress on Sept 23, 2008, with the demand for 700 billion dollars to wall street finally got some attention.
It is not my ideal of accountability to have the taxpayer pay for the financial excesses of the financial institutions.
The market shook shortly after the Presidential Election. Rumors flew that the market was not pleased at the idea that bonuses could be impacted.
So what kind of bonuses are we talking. Dick Fuld, had in 07 cleared 34 million.
Clearly Rand’s notion of enlightened self-interest did not trump raw greed for the banking industry. For more on Rand, see Objectivism and the 1957 novel “Atlas Shrugged”.This all plays nicely into the capital C Conspiracy Theorists who are ready to gloat over the “I told ya so’s”.
The payments were international. The short form of all this is that all nation states are being shown that the Nation state is a thing of the past. “All must bow to the new masters of the world, International Banking interests”.The international bankers becomes the New Vikings demanding tribute from all conquered lands. The barbarians are at the gates and have been for some time. The public had just been asleep.
Will the New Vikings prevail? Stay tuned
James Horne has been a financial analyst for over 10 years. He is CEO of Pure Reason LLC, the home of Shadowtraders. His voice has been heard by hundreds of students learning to trade the Futures Market with Shadowtraders online day trading strategies. Before you buy any trading software, make sure you attend Shadowtraders Monday Night Webinar, and hosted by Barbara Cohen
