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How Shadow Banks Rule the World

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Beyond the banking world, a parallel universe of shadow banks has grown in the form of hedge funds and money market funds. They're outside the reach of conventional financial regulation, prompting authorities to plan introducing new rules to prevent the obscure sector from triggering a new financial crisis. But in doing so they risk drying up an important source of funding to banks and firms.

In the financial world, there is a narrow divide between heaven and hell. Frenchman Loïc Féry realized this when he was 33. He was a rising star in the banking world, managing the trade in complex loan packages for an investment bank. According to his business card, he was the bank's "global head of credit markets." But then one of his employees gambled away about €250 million ($317 million), and suddenly Féry was without a job.

That was in 2007. A number of investment bankers experienced a similarly precipitous fall in the turbulent years of the financial crisis. But, like Féry, many reappeared before long and became more successful than ever, in the world of the so-called shadow banks. These are companies that engage in business similar to that of ordinary banks, but without being subject to the same strict regulation.

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Beyond the banking world, a parallel universe of shadow banks has grown in the form of hedge funds and money market funds. They're outside the reach of conventional financial regulation, prompting authorities to plan introducing new rules to prevent the obscure sector from triggering a new financial crisis. But in doing so they risk drying up an important source of funding to banks and firms.

Authorities = Federal Government. So...does it make any sense at all for the Fed to 'stimulate' the economy by graciously giving billions of dollars of our taxes to Banks...and then to dry up the ability for banks to create wealth at the same time? No it doesn't. That's why you have banking entities like that to begin with...who created them?...the banking industry...why? Because they are so over-regulated by the Fed in the first place. Everytime the stinking Fed puts it's nose in our business it screws everything up.

Edited by joc

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Wasn't it deregulation which allowed lending banks to become investment banks? ...Which caused the current banking crisis? ..and spawned the housing/real estate bubble burst and so on? I don't trust the FED but banks should be regulated .

Edited by lightly
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Wasn't it deregulation which allowed lending banks to become investment banks? ...Which caused the current banking crisis? ..and spawned the housing/real estate bubble burst and so on? I don't trust the FED but banks should be regulated .

ehm, yes. But it had an history. When it was discovered that the collusion between investment, savings and lending aided the big depression in the 20s a certain Mr. Glass and a Mr. Stegall decided to bring an act to Congress that separated bank activities (among a few other regulations). And that worked quite well for about 50 year.s Until a bunch of brilliant politicians in search of money for their campaigns decided to abolish the Glass Stegall act partially. And guess what? It led to Depression Reloaded. Which is what we have right now.

Edited by questionmark
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Wasn't it deregulation which allowed lending banks to become investment banks? ...Which caused the current banking crisis? ..and spawned the housing/real estate bubble burst and so on? I don't trust the FED but banks should be regulated .

There is a thread that explains exactly this. Beginning at about Post #32 you can read where I schooled Tiggs on the subject! :)

LINK

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duh

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duh

duh

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duhhh ... i don't understand all the ins and outs [thanks joc] ... bottom line is.. lending banks should not be allowed to sell their risk . It seems to cause serious problems when they do.

as for shadow banks.. why is it that brand new central banks were the first thing that happened in Afghanistan, Iraq and Libya when 'TROUBLE' occurred?

Edited by lightly

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