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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsYou Can’t Taper a Ponzi Scheme: Time to Reboot
By Ellen Brown, Web of Debt
One thing to be said for the women now heading the Federal Reserve and the IMF: compared to some of their predecessors, they are refreshingly honest. The Wall Street Journal reported on July 2nd:
Two of the worlds most powerful women of finance sat down for a lengthy discussion Wednesday on the future of monetary policy in a post-crisis world: U.S. Federal Reserve Chairwoman Janet Yellen and International Monetary Fund Managing Director Christine Lagarde. Before a veritable whos-who in international economics packing the IMFs largest conference hall, the two covered all the hottest topics in debate among the worlds central bankers, financiers and economists.
Among those hot topics was the runaway shadow banking system, defined by Investopedia as The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions. Examples given include hedge funds, derivatives and credit default swaps.
Conventional banks also engage in shadow banking. One way is by using their cash cushion as collateral in the repo market, where they can borrow to invest in the stock market and other speculative ventures. As explained by Bill Frezza in a January 2013 Huffington Post article titled Too-Big-To-Fail Banks Gamble With Bernanke Bucks:
If you think (the cash cushion from excess deposits) makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these banks to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.
Addressing the ticking time bomb of the shadow banking system, here is what two of the worlds most powerful women had to say:
MS. LAGARDE: . . . Youve beautifully demonstrated the efforts that have been undertaken . . . in terms of the universe that you have under your jurisdiction. But this universe . . . has generated the creation of parallel universes. And . . . with the toolbox with all the attributes that you have what can you do about the shadow banking at large? . . .
MS. YELLEN: So I think youre pointing to something that is an enormous challenge. And we simply have to expect that when we draw regulatory boundaries and supervise intensely within them, that there is the prospect that activities will move outside those boundaries and we wont be able to detect them. And if we can, we wont be we wont have adequate regulatory tools. And that is going to be a huge challenge to which I dont have a great answer.
Limited to her tools, there probably is no great answer. All the kings horses and all the kings men could not rein in the growth of the shadow banking system, despite the 828-page Dodd-Frank Act. Instead, the derivatives pyramid has continued to explode under its watch, to a notional value now estimated to be as high as $2 quadrillion. ...............(more)
The complete piece is at: http://www.truthdig.com/report/item/you_cant_taper_a_ponzi_scheme_time_to_reboot_20140727
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You Can’t Taper a Ponzi Scheme: Time to Reboot (Original Post)
marmar
Jul 2014
OP
Jackpine Radical
(45,274 posts)1. $2 quadrillion
I can't get that number out of my head now. It's like an earworm.
$2 quadrillion. The "notional" value of the derivatives pyramid.
What's the total value of the Earth?
Scuba
(53,475 posts)2. Sounds like they both believe the banks are so large as to be "unregulatable" ...
... and that they're throwing their hands up in despair.
I think Elizabeth Warren has it right (again): "The game is rigged."
GeorgeGist
(25,321 posts)3. When our top financial experts speak like bad screenwriters. ...
Youve beautifully demonstrated the efforts that have been undertaken . . . in terms of the universe that you have under your jurisdiction. But this universe . . . has generated the creation of parallel universes. And . . . with the toolbox with all the attributes that you have
blah, blah, blah. xchrom
(108,903 posts)4. du rec.