January 9, 2008
The Frankensteinian Levered Body of Shadow Banks
Pyramids Crumbling, by (unfortunately moustache-less) Bill(ionaire) Gross
“Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever. Financial derivatives of all descriptions are involved but credit default swaps (CDS) are perhaps the most egregious offenders. While margin does flow periodically to balance both party’s accounts, the conduits that hold CDS contracts are in effect non-regulated banks, much like their hedge fund brethren, with no requirements to hold reserves against a significant ‘black swan’ run that might break them.”
Cat: | Time: 11:47 am (utc+8)