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Shadow Banking Makes a Comeback

Posted By admin On July 24, 2010 @ 5:44 am In Commentary | Comments Disabled

Mike Whitney
Counterpunch [1]
July 24, 2010

Credit conditions are improving for speculators and bubblemakers, but they continue to worsen for households, consumers and small businesses. An article in the Wall Street Journal confirms that the Fed’s efforts to revive the so-called shadow banking system is showing signs of progress.

Financial intermediaries have been taking advantage of low rates and easy terms to fund corporate bonds, stocks and mortgage-backed securities. Thus, the reflating of high-risk financial assets has resumed, thanks to the Fed’s crisis-engendering monetary policy and extraordinary rescue operations.

Here’s an excerpt from the Wall Street Journal:

“A new quarterly survey of lending by the Federal Reserve found that hedge funds and private-equity funds are getting better terms from lenders and that big banks have loosened lending standards generally in recent months. The survey, called the Senior Credit Officer Opinion Survey, focuses on wholesale credit markets, which the Fed said functioned better over the past quarter.” (“Survey shows credit flows more freely”, Sudeep Reddy, Wall Street Journal)

In contrast, bank lending and consumer loans continue to shrink at a rate of nearly 5 per cent per year. According to economist John Makin, there was a “sharp drop in credit growth, to a negative 9.7 per cent annual rate over the three months ending in May.” Bottom line; the real economy is being strangled while unregulated shadow banks are re-leveraging their portfolios and skimming profits.  Here’s more from the WSJ:

“Two-thirds of dealers said hedge funds in particular pushed harder for better rates and looser nonprice terms, and they said some of the funds got better deals as a result….(while) The funding market for key consumer loans remained under stress, with a quarter of dealers reporting that liquidity and functioning in the market had deteriorated in recent months.”  (“Survey shows credit flows more freely”, Sudeep Reddy, Wall Street Journal)

Full article here [1]

Shadow Banking Makes a Comeback  080610banner4 [2]


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URLs in this post:

[1] Counterpunch: http://www.counterpunch.org/whitney07232010.html

[2] Image: http://www.thefallofamerica.net/

[3] Economist: “As A Shadow Government, The Fed Has Mirrored The Shadow Banking System”: http://www.prisonplanet.com/economist-as-a-shadow-government-the-fed-has-mirrored-the-shadow-banking-system.html

[4] Will Adverse Regulatory Changes Cause Further Deterioration In Shadow Banking And Force The Fed’s QE Hand Again?: http://www.prisonplanet.com/will-adverse-regulatory-changes-cause-further-deterioration-in-shadow-banking-and-force-the-feds-qe-hand-again.html

[5] As The Shadow Banking System Imploded In Q2, Bernanke’s Choice Has Been Made For Him: http://www.prisonplanet.com/as-the-shadow-banking-system-imploded-in-q2-bernankes-choice-has-been-made-for-him.html

[6] Shadow Banking Topology: http://www.prisonplanet.com/27198.html

[7] Shadow Banking System Larger than at the Start of the Financial Crisis: http://www.prisonplanet.com/shadow-banking-system-larger-than-at-the-start-of-the-financial-crisis.html

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