What is in the shadow banking (derivative) marketplace?

Whether the total “nominal” value is $600 Trillion as reported in the link below or $1 Quadrillion as reported elsewhere, we know only a few things and those things by themselves require intense scrutiny that the government doesn’t want to do. So the burden of the mortgage meltdown is put entirely on the backs of homeowners and the banks who made paper and actual profits far up into the trillions of dollars get to keep their ill gotten gains.

In 1983 there was no shadow banking market. It simply wasn’t allowed. There was a secondary market where actual mortgage loans could be bought and sold but no shadow banking marketplace.

So we went from $0 to $600 Trillion-$1 Quadrillion in largely unreported, unaccountable, offshore and off balance sheet transactions, the proceeds of which are laundered back into the balance sheets and income statements of the banks to guarantee that they will forever report higher “earnings” — even though the money was stolen or diverted and even though the “earnings” were from the derivative frenzy up to 2008 and not from real current activities. This keeps the stock value of these monster banks as high as management wants.

The shadow banking market boasts more value than all the actual money in the world — by a factor of 8-10 to one. It is the world’s greatest dry cleaning establishment — a moniker previously reserved for the New York Stock Exchange when the meaning was risk of loss rather than money laundering.

What is in the shadow banking market? It’s shadow because there is virtually nothing real about it. It is like Plato’s shadows on the walls. It is but one layer of concealment of all the money siphoned out of our economy in the mortgage derivative frenzy. In there lies all the wealth taken from homeowners across the country and much of the wealth of institutional investors (like Pension Funds) who were lured into purchasing “private contracts” the evidence of which was in certificates issued by a nonexistent REMIC Trust that owned nothing, did nothing and never even had a bank account.

The TBTF banks control all of this by using fear as leverage. The fear of widespread economic collapse is sufficient for governments like our own to overlook the giant theft. How this will all end is anyone’s guess. What I do know is that all the derivatives are based upon a premise that is not true — that the apparent issuer of the first level of derivatives (the alleged REMIC Trust) has ever owned any of the debts, notes, or mortgages that investors think will be used to repay them. The certificates are bogus. And all additional layers of derivatives are equally worthless.

Such Ponzi schemes tend to end in a crash. So we can expect another one, this one falling from the $600 billion perch and causing far more damage unless government unwinds it slowly, carefully and with equal concern for all the stakeholders.

https://www.nytimes.com/2018/07/22/business/derivatives-banks-regulation-dodd-frank.html

Posted in Uncategorized |