Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15
China Stocks - This Is What a Bubble Looks Like - 30th June 15
Stocks Plunge on Greece Euro-Zone Financial Armageddon Blackmail - 30th June 15
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15
Greece - Shoot the Dog and Sell the Farm - 29th June 15
Grexit?, BIS Warning, Chinese Market Crash & Systemic Risk Shake the Global Economy - 29th June 15
The New "Sharing Economy" May Not Be the Profit Bonanza Everyone's Expecting - 29th June 15
Gold and Silver Greece and Short Positions - 29th June 15
Volatility and Sleep-Walking Markets - 29th June 15
Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - 29th June 15
Stock Market More Decline Ahead? - 29th June 15
China Stock Market Crackup - The Final Trap Looms... - 29th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

67 Trillion Reasons to be Cheerful, the Shadow Banking System

Stock-Markets / Global Financial System Dec 17, 2012 - 03:14 PM GMT

By: Submissions

Stock-Markets

David Rose writes: The much-maligned ‘shadow banking’ sector has so far been accused of causing the global financial crisis, restricting access to capital and, probably, global warming too.  But maybe the time has come to bring ‘shadow banking’ out of the shadows and into the light, so that the discussion can become a little more constructive. 


The Financial Stability Board’s (FSB) Global shadow Banking Monitoring Report 2012 shows that ‘shadow banking’ “…grew rapidly before the crisis, rising from $26 trillion in 2002 to $62 trillion in 2007”.  The 2011 count was $67 trillion.  That’s $67 trillion free of banks who cannot lend because they are trying to rebuild their capital bases, and $67 trillion free to invest in worthwhile projects by those who actually own the money.  Indeed, 67 trillion reasons to be cheerful and positive about ‘shadow banking’ or, to use the name given to it by those of us active in the market, ‘alternative capital’.

The reality behind this growth of the alternative capital 2002 and 2007 is not some kind of conspiracy, which appears to be implied in the FSB report, but the flight of capital from mainstream banks into hedge funds, asset managers and others which comprise the alternative capital sector.  This migration of capital took place over the decade before the crisis manifested itself in 2008. 

The people who own this money, wealthy individuals comprised mostly of successful entrepreneurs, could see what was coming long before the collapse of 2008, and began moving it out of the mainstream banking network in order to separate it from the carnage they so accurately anticipated.   A useful analogy would be the flight of wildlife as it heads for the hills before a tsunami arrives.  The wealthy share similar instincts, and responded accordingly. 

In short, these unprecedented global capital flows resulted in a net reduction of balances for the established banking network as it took refuge in hedge funds, family offices, asset managers, investment consortia, syndicates and a host of other vehicles.  It is this private money that underpins the rapidly emerging alternative capital market. 

The reality is that the banking crisis was brought about by the banks’ own hubris – with some notable exceptions.  Many of us saw it coming a decade before it actually happened, with the catalyst being the creation of mountainous debt among those who stood no chance of repaying it.  A child could have seen that it was unsustainable.  How strange (and sad) that the participating banks themselves, media commentators, battalions of highly paid economists and the credit rating agencies didn’t see it coming as well.  The OECD mentioned the ‘global financial crisis’ in research produced for their 2006 Pensions Report, which means that it was already by then an established part of their thinking.  

Alternative capital is now a force to be reckoned with and, in its own anarchic way, starting to show some signs of structure, to a point where it could actually become a tangible and credible permanent alternative to established banking and financing channels.  Alternative capital being fed into the markets through these much maligned ‘shadow banking’ channels is picking up where traditional mainstream banks have failed.  Perhaps it is time to start regarding this sector as part of the solution, as opposed to part of the problem.

By: David Rose, CEO, Equility Capital Ltd (www.equilitycapital.com)

Co-Author: Alternative Capital Raising – Business Funding in the New Capital Markets (www.alternativecapitalraising.com)

© 2012 Copyright David Rose - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History