17 Apr It’s not just the banks
“Most troubling of all, though, is the fact that the focus thus far has been almost entirely on banks. But a lot of financial institutions (quite legitimately) hold large portfolios of bonds and other instruments subject to risks from the rapid rise in interest rates. These include hedge funds, private equity firms, insurance companies, and the rest of vast world of ‘shadow banking’ entities that are not legally banks but engage deeply in the business of finance. In 1998, the Long Term Capital Management disaster brought the U.S. system to the edge of disaster. Barely two years ago, Credit Suisse and several other institutions lost billions making bad loans to a large hedge fund. And only days ago, the U.S. Securities and Exchange Commission raised questions about another hedge fund. We are only likely to find out who will have to pay out on derivatives or has overextended themselves after the fact. The same holds for collateral calls, which can stress firms especially when trading volatility runs high.
The bottom line is this: As the latest round of interest rate hikes by the central banks of the U.S., the U.K, and the Eurozone in the face of the latest instability testifies, governments and central banks are thus far determined to squeeze inflation out of the system by raising rates on ordinary people and businesses. Under increasing pressure from the rising cost of their own borrowing, governments are also looking for ways to trim budget expenditures. But austerity for ordinary citizens and bank rescues for the affluent is a toxic mix. It can easily summon social movements that stalemate the system.” -Yves Smith, https://www.nakedcapitalism.com/2023/03/austerity-for-the-plebes-bank-rescues-for-the-rich.html
“The shadow banking system describes financial intermediaries that participate in creating credit but are not subject to regulatory oversight.
Banks play a key role in the economy, underpinning the credit system by taking money from depositors and using those funds to make loans. Banks usually have to operate with plenty of scrutiny from financial regulators in their home countries and around the world. Shadow banks, often known as nonbank financial companies (NBFCs), can usually operate with little to no oversight from regulators.
Examples of shadow banks or financial intermediaries not subject to regulation include hedge funds, private equity funds, mortgage lenders, and even large investment banks. The shadow banking system can also refer to unregulated activities by regulated institutions, which include financial instruments like credit default swaps.” –https://www.investopedia.com/terms/s/shadow-banking-system.asp
In other words: the hopium about the soundness of the banking system is probably just that – hopium. Because when you look at how deep this murky shadow banking world goes, it’s pretty scary.
The people at that level have so many accountants, so many lawyers, they know where the loopholes are and they take full advantage. Even if they had to leave the country they would do it in order to hoard their wealth. This should not be a surprise to anybody. Yet you’ll still see people seal clapping that Senile Old Man is going to be the one or Orange Man is going to be the one – one of these politicians is going to finally be the one to get all these wealthy tycoons to pay their taxes. No, they won’t.
And I feel like this concept of shadow banking and what has happened vindicates what I’m telling you: the banks will just simply move into the shadows. They’ll set up these hedge funds and these shell companies to do what they really want to do in the shadows in this very smarmy, unregulated, dark world. You’re not allowed to know what’s going on behind the curtain, you’re not allowed to see what’s happening. It impacts the whole system and it’s incredibly fragile and at any point in time, it can go straight to hell, and that will impact you. But yet, you’re not allowed to know what they’re doing. ‘Twas ever thus. I believe that whatever regulations you put on them, they will figure out a way to game the system, to beat the system because hello, hi, how are you, cockadoodledoo. They are the system. Please wake up.
– “Get your money for nothin & your job loss for free” https://www.buzzsprout.com/1125110/12468460 published on March 23, 2023.
🐓Cockadoodledoo. Wake up.