From CounterPunch
By Mike Whitney
''Regulators are worried about the explosive growth of
shadow banking, and they should be. Shadow banks were at the heart of
the last financial crisis and they’ll be at the heart of the next
financial crisis as well. There’s no doubt about it. It’s simply
impossible to maintain a system where unregulated, non-bank financial
institutions are able to create their own money (credit) without
oversight or supervision. The money they create–via off-balance sheets
operations, securitization, repo or other unmonitored mega-leveraging
activities–feeds into the economy, creates artificial demand, lowers
unemployment, and fuels growth. But when the cycle slams into reverse
(and debts are no longer serviced on time), then thinly-capitalised
shadow banks begin to default one-by-one, creating a daisy-chain of
counterparty bankruptcies that push stocks into a nosedive while the
economy slips into a long-term slump.''
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