Here is a study of the shadow banking system, and what changed that helped to fuel the credit bubble and the financial collapse.
The root of this was in the overturning of the Glass-Steagall, the well funded lobbying effort for deregulation in the financial sector under the banner of the efficient markets hypothesis and the trickle down theory, and of course, a systematic undermining of regulation, the media, and the law by the monied interests.
Debt is not money. But it can be animated and treated as faux money through fraud, and the end is always bitter for the many, but sweet for the perpetrators of this scheme, if they can get away with it and keep their loot. They are actively on the look out for fall guys and patsies, and their number one target are their past victims.
There is a difference, the subtlety of which is lost on many, between the deleveraging of a debt inflation and a genuine monetary deflation itself. In this case the traditional money supply is expanded to save the banking system, which is the primary victim of a debt asset deflation. That highly unproductive expansion of the fiat money supply, without a commensurate increase in production of real wealth, is what is causing the recession in the real economy today, and the soaring price of hard currency alternatives.
The real economy is starved for real money, but instead is flooded with counterfeits which flows to frauds of every type. It cannot bear to submit to economic discipline because it is not born of savings and investment.
Since this is someone else's thoughts it would be extraordinary for me to agree with everything, but I found it a fresh take and well said, and substantially congruent with my own thoughts.
Enjoy.
Securitization – the Undead heart of the Shadow banking machine
By Liar's Lexicon
At the centre of all debates about the Banking crisis, the shadow Banking system and the bank bail-outs is Debt. For a long time I have been arguing that what this debt is, is in fact a new, bank created, bank issued and ultimately bank debased debt-backed currency. And the collapse in value of this unregulated currency IS the crisis. Its cause and its logic.
In order to explain why I think this and why I do not think ‘fixing’ the banking system back to any semblance of how it was, just prior to the crash, will be anything other than a disaster, I have to explain how debt is turned into money. And how, clever as this process is, it also contains within it the seeds of its own undoing.
To do so I have to take you into the undead heart of the machine – securitization. Securitization is what animates the global financial and shadow banking system in whose shadow we now live. It is how modern finance turns debt into money. It is the impious alchemical dream of turning lead to gold, water into wine.
When Securitization was invented it soon wrested control of the money supply away from nations and gave it to the banks. Nations still printed and controlled their currency. But securitization gave banks the ability to print their own currency. And this new securitized currency, based on debt, was theirs to print, control, spend, and ultimately to debase. In short, it gave banks a power to rival nations. It is worth, therefore, understanding its outlines at least.
Please don’t panic. Like most financial stuff its not nearly as difficult as the priesthood would have you believe...
Read the rest of Part 1 here.
Read Part II here.
Read Part III here.
