The $30 Trillion "Problem" At The Heart Of Shadow Banking - A Teaser
Frequent readers know about Zero Hedge's fascination with the murky world of "shadow banking" a topic we have been covering since late 2009, which can best be summarized as follows: the near-infinite fungibility of electronic credit-money equivalents within the infinitely interconnected modern financial system. The recent escalation in the discovery of massive broker capital deficiency courtesy of the MF Global bankruptcy as a result of a collapse in one of the numerous shadow banking funding pathways, namely rehypothecation, is just the very tip of the iceberg. Much more is coming, as shadow banking continues to be unwound day after day (we will post an update of the Q3 data later in the day). In the meantime, we go back to that one certain Citi report from September 5, 2008 which explained just how broken the financial system was that according to some, the realization, and not some ulterior deathwish, is what sparked the run on Lehman, and subsequently money market, ABCP, repos, synthetics, structured products, securities lenders, AIG, and everything else that the Fed had to step in with a roughly $30 trillion bail out. Why was it $30 trillion? Simple: because at its heart, the "shadow banking" system has a $30+ trillion diabolic funding mechanism, where when one cuts out all the fancy nomenclature, acronyms, abbreviations, and jargon, the bottom line is that there are increasingly less and less hard assets (i.e., cash-flow generating), funding ever more and more liabilities, and where one's assets are another's liabilities in a "fractional reserve" recursive loop, and which in that shadowy sub-center of modern banking - London (because New York is just for regulatory diversion)- the loop can go on literally in perpetuity.
Said otherwise, when one or more of the funding pathways in this system break, the whole backbone of what maintains modern finance can and will collapse, as was explained so vividly back in September 2008 by Citi. While we will go into far greater depth on this topic soon, we want to leave readers with a teaser schematic that explains the core relationships betweem the key actors and the primary driver of global economic "growth" over the past 3 decades - the flow of synthetic liquidity. It took the Fed every weapon in its caliber to prevent this chart from imploding (in its real world manifestations of course) in late 2008. It will take the global central banking cartel all that and much more to halt the second such implosion. Which is coming.
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$30 Trillion, Bitchez!
i wish the phucknuts that be would just let the system reset already. my popcorn is getting stale.
Get melamine popcorn. No best-by date.
I highly recomend Harveys turnover, it's always crispy, rain, fog whatever it is. Probably is good after 1 year and delivers fruity vitamins to your system, as good as popcorn + vitamins.
all that debt, needing to grow, needing to be serviced and nobody can do it.
It is stunning anyone is still trying.
Service=Military
Service=Pay the monthly.
Service=Politicains in kneepads trying to keep bankers in the money so that the gravy train does not stop.
Service=Serve us, debt slaves. Work your job, take home your check, give it to us, all for shit we have convinced you that you need which you really don't.
Service=Serve vices. All your habits are belong to us. American Idol, NASCAR, football, booze, drugs, video games, whores, serve all your vices because it's all you got to live for.
Service=Serve US.
Are you not entertained?
http://www.youtube.com/watch?v=FsqJFIJ5lLs&feature=related
I wasn't cheating, honey. I was merely rehypothecating your dowry.
Can anyone pronounce that fucking word?
I have hippopotomonstrosesquippedaliophobia so no I can't .....
Ahhhhh.....classic. Can't decide if that is s joke or for realz!
Shadow banking is merely a euphamism for Black Money. Seriously, just replace "Shadow Banking" with "Black Money".
Suddenly all this reads better, puts all the suited criminals in their true light and since we all know that the Black Money game is far huger than the white one, gives us a sense of scope and danger of the Black Money System.
Seriously folks, labels are important.
The 30 Trillion problem at the heart of the Black Money System.
ORI
/the-plan/
Yep, you need Mary Poppins.
Ahh, a serial junker who doesn't understand debt dynamics. Funny.
Great stuff MsCreant I especially liked "All your habits are belong to us". Very apropos in a list that includes video games.
OT. Fast Money Interview: James West of the Midas Letter
He gets some serious licks in. US interests manipulating the paper gold market. 4000 contracts sold in the wee hours last night. Fiat money going to zero value. There will always be a buyer of physical gold. Melissa Lee cut him off abruptly because he KO’ed the entire Fast Money BS-er crew.
http://video.cnbc.com/gallery/?video=3000061991
lots of US Banks in "the City".............more than i would have thought.....
"There are 110 banks in the City owned by France and Germany which could be caught up by the tax. Most of the 1,117 foreign banks and financial services firms in the capital are US-owned."
http://www.thisislondon.co.uk/standard/politics/article-24020148-nick-clegg-says-camerons-euro-move-was-bad-for-britain.do
@ Pegasus: If you look at the transcript of the clip, any references to "fiat" currencies have been removed. Ditto the entire section where James talks about vested interests who shorted 4000 gold futures contracts during HK trading hours. Amazing!
That is wild. Where are our resident anti-gold shills and or apologists for fiat manipulation? Hmm, please justify this NON-conspiracy. *chortle*
actually you have (accidentally) just stumbled on to a far greater problem than "the shadow banking system." Where the system breaks down is when lending growth seizes up. In the US it's growing about 2 percent a year which is at best...ahem...ANEMIC. In Europe i guarantee it's negative. If loan growth turns sharply negative...and so far we have the perfect storm of policies to create just such a perfectly disastrous outcome in Europe...then that would be the precursor to a start of a massive bank run as "i don't trust your country with my money" is writ real.
already happened - some 50% of lending from US banks & funds to EU banks & funds was retracted in the last months
collateral damage: the FED "realized" the Europeans could sell off the US assets in the same measure (they were partly funded by the USD loans)
hence the direct lending in USD through the CBs
Dehypothecation Bitchez
@TimmyM Have you not coined a new word? I believe you have. You might go enter it into the Urban Dictionary. De-hypothecation. Indeed, that's what it will be. BTW, for those wanting to know how to pronounce it, I figure the syllables break down like this: De-hypo-the-ca-tion.
Dehypothecation: (Verb) To cash out of one's financial assets and exchange them for real assets. See also (BEANS, BULLETZ N' BULLION, BITCHEZ).
Dehypothecation?swab mouth offshore swapfx short covering bund hedge ABACUS Bitchez aka jello banking___ tagline once
“That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.”
Aldous Huxley
Srsly. Fucked if it happens around Dec 2012 too. People will lose their shit.
no... the ones that will freak out have no wealth... those that freak out will say ...well HOW could the canadian dollar be an impact to me.
completely ANONYMOUS... my house was hoarded with y2k in 1997 supplies form my uncle... bubbles move."brilliant guy that got crazy yet worked for GS...moved mbs...cdo2...for years since inception...the house of cards will fall.. but a new house will be built".....on quicksand...but whatever...crouds think strange things... he knew meriwether and kinsella and neiderhoffer...be a neiderhoffer..open ...your...fn...eyes
Eyes wide open now. It's time to call the ball.
Pretty simple really I think, shitty yes but an old saying I like is this, if it smells like shit, taste like shit, then just shove it out into the sunlight.
Pretty soon the shit that is in the sunlight, if it looks, taste and smells like shit, let the sunlight burn on it for a bit.
Soon. 2012 = the end
As long as Bernanke has a printing press, does it really matter how fucking high the number is, if the world goes along with the game?
To a Skewes' number and beyond!
If the world goes along... It will and it wants too, like a beaten wife willing and able to jump o n the cop's back handcuffing her abuser. Most people will take the blue pill without a doubt and that is why this will take much longer. Forget finance concentrate on psychology if your interest is timing.
I haven't seen the Tylers post this link, but in the most recent AC 2011 Session, Kyle Bass kind of touched upon this rehypothaeklajklation stuff starting at 42:00.
http://www.youtube.com/watch?v=5V3kpKzd-Yw
what do you mean?
Kyle LOVES the Comex.. and he Loves how his Gold was spread out all over the place.. and he really does trust in Price controling the deliverable amounts of Gold!
$80 Billion Trading in Paper Gold.
$2.7 Billion in physical, before Kyle took his $1 Billion which ='s $1.7 Billion v $80 Billion!
Dont worry the price of Gold will drop as Credit Markets Freeze.. as Martial Law is enacted.. but the real question people skip when yapping about the price (of Paper) Gold going down forth coming because of the European Crash.. is where or who is selling real physical at that lower price?
Dont get me wrong! I will be looking for those people dumping Physical Gold or Silver! and buying..
But I dont think that there will be a retail or reasonable amount of physical metal trading at low prices during Martial Law Time Periods.
Jus sayin!
Travis you wanna try and take a wack?
Who will be selling? Sovereigns...for many reasons, not the least of which will be to keep prices down AND get cash they need for liquidity in the fiat system they absolutely believe in. Worse comes to worse, they'll just try to steal it back from those stupid enough not to dump it over the side of their boat. Government-sponsored brokers (and run of the mill idiots) will still be offloading, IMHO. But, if not....that's why I have 40% of my desired position already.
Tyler posted it. I was #302. It's now over 60,000. Zero Hedge's public service announcements work.
Holy fucking shit.
The giant vag
the diagram looks like a squid. It's Goldman Sachs.
It's not what the diagram looks like but what the motivation is to blow a $30 trillion dollar line of smoke
It looks like a whale to me. What you need to do is shed the bottom 20%, that will make things better. Then, shed the next 20% ad naseum until there's no customers, and thus no profit, left. Oh wait, wrong decade...its a squid.
The biggest Pyramid in all human and alien civilisation history....Keyneses Pyramid.
This is not the virgin you're looking for.
Great Chart. I want the T-Shirt!
Drink up.....Aint' no party like a counterparty !!
I need a break from all this heartless and self-serving financial conniving.
I think I’ll go do some good and donate a toy for some poor impoverished child.
http://chicago.cbslocal.com/2011/12/12/admiral-theatre-offers-lap-dances-for-holiday-toy-donations/
Happy Holidays.
Charming idea. It's all about the little kiddies at Xmas.
You'll shoot your eye out kid...
http://www.youtube.com/watch?v=ppOXpyhM2wA
Time to give a slug to the local foodbank and health clinic. Time to give a kid a toy. They may take our money, skull fuck our future, but they can not take our humanity, were fucking better than that.
Like a East coast counterparty cuz a East coast counterparty don't stop! All the banksters in the house say YEAH....YEAH.
$30T? That's all you got?
Wake me up when they've tacked a few zeros on the end of that.
30 trillion as of June 2007....multiply by 20x or 30x and there's a few more zeros...there, fixed it for ya (sarcasm on)
Cratering the EU banking system will require at least $2000T in shadow assets. After 70 years of effort maybe we're getting close to that figure. But I'm beginning to wonder if Ben is really up to the task anymore.
What a tangled web these banksters and TPTB weave.
Only The Shadow knows. And he's having a nervous breakdown. There, there, Shadow, let it all out.
"the shadow fades into twilight as the invisible hand crushes any semblance of kafkaesque, as it dines on the sleeping lotus,... alas, time is but meaningless to the music-of-the-spheres as yesterdays morrows awaken to the eternal choir of 'pantheism', with nigh a thought of the past, as lemming's to the sea"
this is the world we have made, not knowing, or understanding we were part of the creation?
thankyou tyler
Tic Toc squid men.................. Tic Toc.
"Hey, can a bum a dime off you?"
"I'm just a trillionaire, man."
"Sorry, I didn't know you were broke too."
It looks like there is room for a PF Chang's next to the money funds.
I could use some explaining on this "teaser".
They've kept the pension fund mess pretty isolated from media view. With the first wave of boomers about to hit pensions and 401k in 2013, the real stress cracks are going to surface.
The boomers can disappear over night. Problem solved.
Yeah, just give them proper healthcare!
Put them all in a round-room and tell them there is free proper healthcare in the corner...
Ahhh, so thats what these FEMA camps are for....
"Welcome to retirement! Please come to Camp... err, Admin. Building Delta 5 to fill out the remaining forms and collect the first check."
Can I bring my black rifle?
Carousel is a lie... There is no renewal...
http://www.youtube.com/watch?v=xSnLU9nyFSA
....BUT YOU TRY DAMN HARD....!...RUNNER...!
Camp sounds like fun. Where's the swimmin' hole?
You can gargle our balls for a buck! Now you gotta job.
When?
Just so we're clear, is CP the Child Pornography fund?
Only if the SEC is in charge.
Well those Euro technocrats look like they really love their CP. They allocated $270 billion to it, I don't even want to know how many brown children you can fit on your yacht for that amount.
word
I will call a spade a spade.
I'm not one for fanboisism, but Zero Hedge, warts and all (every thing, person and site has them), is hands down my favorite site due to:
1) Wide and ecletic range of articles from a very broad perspective and debating a very broad contentions through the use of an equally broad range of paradigms;
2) Many readers commentators who could decimate Bernanke so badly in a public debate, that The Bernank would be disgraced to the point where he attempted to hang himself, but police would respond to a farcical call of a man who fell to the floor while pushing on a string;
3) Lack of censorship (I find many comments distasteful and ignorant, but when you do any censoring, you throw the baby out with the bath water - to ZH's credit, they don't and haven't, and are rare in that regard).
But:
ZH's board of elders had said the shadow banking black hole had been all but eliminated back in January of last year, and I do recall arguing the point that this was a) unlikely, and b) even if they (fractional reserve wizards of incompetence and corruption) had [temprarily] backfilled the hole, the hole is not static, and could and WOULD grow, and c) no one can estimate how large the vortex of the shadow liability black hole is, given the joke of mark-to-unicorn valuation standards being employed, the leverage in the system, and the death spiral of capital destruction fractional reserve banking tactics have now created.
What was said in "Deflationists Take Note: Bernanke Succeeds In Offsetting Shadow Banking Collapse" is that Bernanke had succeeded in offsetting the drop in shadow banking liabilities "for the quarter." The problem is there are $15 trillion more in pure liabilities that continue imploding (more on the latest update later), and continued offset has a necessary and sufficient condition of continued currency debasement via monetization. Period. The Fed's balance sheet is under $3 trillion. The potential hole is $15 trillion. Do the math.
And yes, one can have a rough estimate of how big the vortex is. Which is what the scariest part about the message here is.
I just spent 10 minutes trying to find that analysis (which was a thought provoking one).
Now, I feel compelled to re-read it (and think about its implications) again.
Thanks for the link.
you do realize that there are 'black holes' in our galaxy, yet we have no ideal what turns them on or off - unable to detect them because time is of no value as a determinate,... one could be upon us this very moment
i hope you realize i'm using this example as an abstract metaphor - as is, at any moment this debacle tyler speaks of,... could appear at moments notice
As an aside, do you play chess online? Just curious.
Not very well.
Nobody knows what the SB liabilities amount to, the only way to find out is for the delverating to begin and find how where the shortfalls appear in the 'real world'.
Then, it is too late to do anything about them.
A lot of left-over mortgage-related liabilities are still lurking the the shadows.
Another problem is declining China trade surplus, the 'savings glut' is vanishing. All that remains are liabilities which are hot air.
As many ZH editors and members would agree (although some would dispute it), I find it at least ironic that the more the wizards, conjurers and sorcerers of our now global fractional reserve banking system destroy larger and larger chunks of the private, organic economy and private, organic (supply/demand & price/supply derived, which central bankers are absolutely distorting with impugnity)) consumption, with each larger and larger batch of digital fiat they distribute to the banks in order to try and fill in their tar pits of liabilities (growing larger with time despite past backfilling), and that the destruction of the private, organic demand by such backfilling only leads to a death spiral whereby they have to increase the frequency and the amounts of the backfilling.
E.G. - I am a home builder. Even though demand is anemic, I would have taken more risk and built more homes had the prices of materials been lower, which would have been the case had commodity prices not have been artificially lifted by central bank monetary policies, because those commodity price increases cause the price of building materials to rise by 30% (and be 50% higher than where a free market would have priced them - The Bernank gave reams of money to banks with trading desks and then told them to go and bid risk-on commodities higher, and he'd make sure they'd get compensated for any losses they will incure, so that it's a zero risk game for the banks currying favor with the NY Branch of the Federal Reserve), and now I can't make a profit and have a higher risk of a non-sellable or sellable only at a loss unit, because the affordability of the home is not in synch with incomes, due to the shitty economy and credit and banking and lending conditions.
It's all a genuine snake eating its own tail process at this point.
I sometimes imagine these geniuses getting together and discussing exactly this problem. When they do, I wonder how frank they are with each other?
Banker1: "That's because the snake is eating its own tail, fellows. And it always has."
Banker2: "Well it has to eat something. And there is a great deal of snake, as it is."
Banker3: "But clearly this is not sustainable. The snake will run out of snake to eat."
Banker1: "Not really. Even when eaten the snake is all there, only some of it is now inside some other of it."
Banker3: "Do not be ridiculous. Rome did not become a great empire by eating more bread than it baked."
Banker2: "Except when it was on the march."
Banker3: "At which point it ate the bread of others. Also not sustainable in the end."
Banker1: "It may seem so. But in reality so long as the snake is eating something the world goes on. All we've ever done in the past is make sure the snake grows in length faster than it eats its own self. There needs to be a free loop of snake so it can eat itself, there does not need to be all the snake."
Banker3: "The classic Ponzi. We all know how those end"
Banker1: "Ah but this could be not the classic Ponzi but the perfect Ponzi, you see. The problem with most Ponzi operations is you run out of new money. But in this case the snake is eating itself, so in theory it can never run out of snake, even if it is not growing. Running out of something that is simply being moved around the stage would be a logical falicy."
Banker2: "Which as we all know was a good enough argument for Congress in 1913. I don't see why we need to change the story now."
Banker3: "You are both insane, you know that, don't you?"
Banker1: "Or the universe of money is more nuanced than you are prepared to admit, my friend."
Banker2: "Which time and time again has proven true, you'll admit."
Banker3: "Since 1913, perhaps you have a point. And ultimately what matters most I suppose is how long it can be stretched out. For after the day of reckoning there won't be much discussion about fallacies one way or another."
Banker1: "Not if we can engineer a large enough collapse, there won't be."
Banker2: "All or nothing, this is love."
Banker3: "[raising glass of wine] To our god Oroboros, and the all and the nothing."
[clink of glasses, the string quartet seated nearby starts in on another light Boccherini sonata. And scene]
Truthinsunshine, you are so so spot on with your comment. Business owner's have been getting blow torched for year's on increased commodity pricing. For example our fuel bill's more than doubled in 08' which we where not able to push to our customer's.
Business owner's that I know are completly fed up with the risk to reward. This is not to even mention the crooked fucking banker's business owner's have to deal with these day's.
Thanks.
I'm not a homebuilder, but was just using that example for purposes of the vicious feedback loop that the central banksters, and especially, The Federal Reserve, have now created.
One could substitute 'restaurant owner,' 'widget manufacturer,' etc. and get the same basic recipe for disaster they're now set up for thanks to The Bernank backstopping the most favored player financial players who get to BOTH speculate with an express or implicit taxpayer bailout guarantee (there's nothing wrong w/ speculation, but doing so with taxpayers having to eat losses is central planning) AND have a lifeline to the Fed for as much free fiat as they literally desire, no questions asked, all while they chase beta and drive prices of many commodities and products higher, because the normal, free market, price discovery that would have occurred via price/demand curves is now irrelevant.
One could now be a restaurant owner, and have the task of trying to keep volumes up without raising prices, or keep profits up at the risk of losing volume, with the back and forth margin vs. ass-in-seats dilemna (until one ultimately destroys the other), because you're paying 50% more for your meat and flour and produce (50% more than a normal price/demand/supply interchange would ever allow), because The Bernank has given a taxpayer guarantee against losses to the very banks with trading desks that are borrowing taxpayer money at no cost and gambling said money in commodity markets.
The kicker is that The Bernank and his cohorts, and the patsies in the media, who are all in on the game, and part of the scam, have it as a central goal to convince the masses that economics is "so complicated," that one should just "trust The Bernank, because if anyone can save the economy, he can," even if none of what he does - after literally dragged out the dark recessess by FOIA requests and such, makes any sense whatsoever if helping the most people was his true goal.
Through deception you brought up a good example. The economy runs on small business owners who make maybe $100K-$500K, not CEO's and Wall St. thieves. Large business hasn't created jobs in the US in 11 years. There are notable good exceptions, Apple, and notable bad exceptions, Wal-Mart, but I digress. Policy is made as if business is one coherent thing. It is not. There's the global klepto-corptocrasy, and there's small to medium business.
The global klepto needs to die a quick and painful death. They cannot make money anymore under fair rules and fair taxation systems.
Small business needs to be stimulated. Of course that requires a lot of free thinking which is frowned upon and incented against.
I don't know. We need an economic depression so change can happen.
Quite to the contrary, policy is set to favor big business over small & medium.
Trust me (you'll have to, as you don't know me personally, but I could only really convince you if you did - so for sake of argument, if anything) when I say that I am libertarian, while acknowledging the necessity of some form of social contract between a citizenry and THEIR government ("their" being the operative word; the government must work for the citizenry, and once that loyalty dies or is hijacked, the social contract is voided and a nullity).
So, I proclaim that there at least appears to be an agenda not to set policy that favors "big business over small & medium," but rather, policies put into place by legislators and regulators that are designed to favor multinational financial and business interests in such a way that their power and wealth is concentrated via all manner of favors, breaks and incentives, all available exclusively to them, whereby they become the de facto driver of monetary, legislative, and social policy.
Maybe this is why instead of seeing what was promised as an integrated global economy giving rise to massive multinationals lifting prosperity and living standards for all on the crest of a rising tide instead translate into a a rise in prosperity and living standards for a select few, and the ability to drown the wages, living standards and opportunities for the many.
After all, human labor is now the cheapest commodity of all, once again, in many parts of the world (and expanding), just like it was so many past times when tyranny and collusion of the wicked reigned.
*For emphasis, let me say I care absolutely not whether the rate of labor is 7 cents or 7000 fiatskis per hour, nor whether the services of a competent mechanical engineer are valued moreso than the services of a banker, SO LONG AS A FREE & UNFETTERED, UNSUBSIDIZED, NON-GAMED MARKET IS ALLOWED TO SET THE VALUE OF THESE RATES & SERVICES.
Truthinsunshine:
"So, I proclaim that there at least appears to be an agenda not to set policy that favors "big business over small & medium," but rather, policies put into place by legislators and regulators that are designed to favor multinational financial and business interests in such a way that their power and wealth is concentrated via all manner of favors, breaks and incentives, all available exclusively to them, whereby they become the de facto driver of monetary, legislative, and social policy."
http://www.archives.gov/exhibits/charters/constitution.html
Not a challenge TIS, just a pointer to friend's.