Our cuckoo Canuck, writing in yesterday's FT:
As progress has been made in reforming the global banking system and as risk appetite returns to financial markets, wider attention has begun to focus on shadow banking.
That focus is not new for policy makers. Reform of shadow banking – the extension of credit from entities and activities outside the regular banking system – has been a core part of the Group of 20’s agenda to overhaul the global financial system since the 2009 Pittsburgh summit, when, in response to the crisis, leaders established the Financial Stability Board. The aim has been to deliver a transparent, resilient, sustainable source of market-based financing for real economies…
There follow endless iterations of buzz words like "opacity", "transparency", "misaligned incentives", "leverage" and "liquidity", you know the score.
But take it from me, there is no "shadow banking system". What he is actually referring to is all the "money market funds" (and hedge funds and so on) who bought the securitised mortgage assets from the banks, which in crude terms you could view as "money market funds lending banks money".
Those money market funds appear to the the bogeymen here, the ones to blame for the house price bubble and bust and so on. But in the real world, those wicked funds did not go round lending money to the man in the street, to businesses or to mortgage borrowers, they were created by normal banks doing securitisation in the first place. There was demand for such funds (to buy up banks toxic crap) and supply arose to meet demand.
Nobody asked the banks to do securitisation, it was not forced on them. And even if the funds involved on the other side are secretive and do not publish their own financial statements (why on earth should they? do you have to make public how much you have on deposit at the bank?) then so what? The banking system knows what their total assets are because their total assets are all the toxic crap which the banks sold them in the first place.
To sum up, the banking system itself knows perfectly well how much they have got on deposit and from whom, there is no vast unknown "shadow banking system" and Carney is just picking on a meme started by Gordon Brown and others to try and shift the blame away from themselves. And I am amazed and disappointed that Carney would stoop so low as to pretend he believes in all this voodoo crap.
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