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Brokers threatened by run on shadow bank system - Regulators eye $10 trillion market...
MarketWatch ^ | June 19, 2008 6:29 p.m. EDT | Alistair Barr, MarketWatch

Posted on 06/20/2008 10:01:11 AM PDT by Ernest_at_the_Beach

SAN FRANCISCO (MarketWatch) -- A network of lenders, brokers and opaque financing vehicles outside traditional banking that ballooned during the bull market now is under siege as regulators threaten a crackdown on the so-called shadow banking system.

Big brokerage firms like Goldman Sachs, Lehman Brothers , Morgan Stanley, and Merrill Lynch,

which some say are the biggest players in this non-bank financial network, may have the most to lose from stricter regulation.

The shadow banking system grew rapidly during the past decade, accumulating more than $10 trillion in assets by early 2007. That made it roughly the same size as the traditional banking system, according to the Federal Reserve.

While this system became a huge and vital source of money to fuel the U.S. economy, the subprime mortgage crisis and ensuing credit crunch exposed a major flaw. Unlike regulated banks, which can borrow directly from the government and have federally insured customer deposits, the shadow system didn't have reliable access to short-term borrowing during times of stress.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy; Extended News; Government; Technical
KEYWORDS: banking; economy; financialmarkets; goldmansachs; lehmanbrothers; merrilllynch; morganstanley
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1 posted on 06/20/2008 10:01:11 AM PDT by Ernest_at_the_Beach
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To: Ernest_at_the_Beach

Regulating these firms is impossible because they ARE the government. Any new regulation will coincide with a bailout.


2 posted on 06/20/2008 10:10:23 AM PDT by Soliton (Investigate, educate, then opinionate.)
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To: Ernest_at_the_Beach

I agree that there should be some regulation otherwise the suffering is widespread and economy becomes a yo-yo.

The idea is that same rules that Federal Reserve lives by should be applied on shadow bankers as their size has gown equivalent to central banks.

The whole world is facing inflation and bad stuff is on the horizon.

This could have been avoided and nation would not have been trending hard left if someone could have nipped the evil in the bud.


3 posted on 06/20/2008 10:12:22 AM PDT by The_Republican (Conservatives are in trouble because they hate Scarlett Johanson.)
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To: All
Related story....FR Thread:

Paulson's unhappy with slow pace of reform - wants Congress to move quickly on giving Fed new powers

4 posted on 06/20/2008 10:16:35 AM PDT by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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To: Soliton

Bailouts are needed because there was no regulation.

They simply did not have any liquidity to adjust to short term needs.

People don’t know who is offering them Mortgages.

These guys are.

Yet when they do not follow traditional banking guidelines, they go out of business and millions who thought that they were taking out loans like people TRADIONALLY do are now going to be wiped out.

This protects everyone.

If they are going to act like Banks, they should follow the same guidelines or find some other business.


5 posted on 06/20/2008 10:17:28 AM PDT by The_Republican (Conservatives are in trouble because they hate Scarlett Johanson.)
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To: Ernest_at_the_Beach

The mother lured the daughters into the trp where they were murdered. I hope she hangs.


6 posted on 06/20/2008 10:23:03 AM PDT by Blood of Tyrants (G-d is not a Republican. But Satan is definitely a Democrat.)
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To: Ernest_at_the_Beach

Cramer BRAGGED how he committed a CRIME by doing naked shorts - the SEC, etc refuses to enforce existing laws so why do we need new ones?


7 posted on 06/20/2008 10:26:29 AM PDT by spanalot
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To: Ernest_at_the_Beach

The US has been preaching transparency and rule-of-law to the governments of a lot of third-world hellholes. We could use some here, particularly when the taxpayers are taking part of the risk.


8 posted on 06/20/2008 10:58:40 AM PDT by omega4412
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To: Blood of Tyrants

????????


9 posted on 06/20/2008 11:04:24 AM PDT by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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To: Ernest_at_the_Beach

Now I know why my grandmother said NEVER trust a banker.


10 posted on 06/20/2008 11:07:09 AM PDT by Vaduz (and just think how clean the cities would become again.)
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To: Ernest_at_the_Beach

Oops. Wrong thread.


11 posted on 06/20/2008 11:09:21 AM PDT by Blood of Tyrants (G-d is not a Republican. But Satan is definitely a Democrat.)
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To: Ernest_at_the_Beach
That sounds like a lot of money. How about this number...

Total Notional Value Of Derivatives Outstanding Surpasses One Quadrillion

12 posted on 06/20/2008 11:09:45 AM PDT by Sgt_Schultze
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To: omega4412

BTTT, I have always believed anything that is not based on something real is a shell game with the taxpayer as the fool.

Congress critters will never bite the hand that feeds it. Real reform would be to limit campaign contributions to individuals from their own state.


13 posted on 06/20/2008 11:19:02 AM PDT by A Strict Constructionist (We have become an oligarchy not a Republic.)
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To: Sgt_Schultze
That sounds like a lot of money. How about this number...

Scary! If you don't know how a derivative works.

14 posted on 06/20/2008 12:20:48 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Sgt_Schultze

That is scary!


15 posted on 06/20/2008 2:56:52 PM PDT by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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To: Ernest_at_the_Beach

LOL!


16 posted on 06/20/2008 2:58:01 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Sgt_Schultze; 1rudeboy; Mase; expat_panama; groanup; JasonC
Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt.

Proof Jim Sinclair doesn't know how derivatives work.

17 posted on 06/20/2008 3:03:42 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Toddsterpatriot

Even if we use the figure that experience tells us is the cost of derivative contract failure is 2 to 3% of the notational value, that’s what, $20 trillion+?

Even that number sounds too high.

I’m fully prepared, however, to believe that the sum total costs of failed counter-parties will reach or exceed $1 trillion. The under-capitalization of many of these derivative contract holders is absurd. Look no further than the so-called “monolines” - they have nowhere near the capitalization to handle the CDS instruments they’re in now, which is why they were downgraded this week.


18 posted on 06/20/2008 4:01:07 PM PDT by NVDave
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To: NVDave
Even if we use the figure that experience tells us is the cost of derivative contract failure is 2 to 3% of the notational value,

Derivative contract failure is 2% to 3%? Says who? Where?

What does "contract failure" even mean?

that’s what, $20 trillion+?

If nobody long ever offset anything with a short. If no one short ever offset anything with a long.

I’m fully prepared, however, to believe that the sum total costs of failed counter-parties will reach or exceed $1 trillion.

Sum total costs are zero. Every loss on a derivative is offset by a gain on the other side.

Look no further than the so-called “monolines” - they have nowhere near the capitalization to handle the CDS instruments they’re in now

Yes, it'll suck if you were counting on a monoline to pay you and they end up defaulting.

19 posted on 06/20/2008 4:57:03 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Soliton

President, Paulson, Bernanke will all hold there ground, despite threats to them that they will offshore and damage the economy further if the party for the shadow banking system stops. Sheila Bain is sickening. Get her off the Fed now Mr. President.

The pain will be massive as a depression unfolds over a couple year period and final resounding tipping point of collapse. The President knows this and is acting honorably for the American people, but half the dummies out there will blame him entirely for there pain when it happens.

Make money now while you can and prepare a back-up plan and I am not talking about hedging your portfolio bets, I am talking about a physical place to go. Mobs of hungry, enraged, entitled, deluded, spoiled population will feel it has a right to break into your nice home you slaved your life away for and do unpleasant things to your family. The guys at the shadow banking system who knew this or couldn’t understand the economics behind these schemes have 20 foot high fences and security. Do you?


20 posted on 06/20/2008 6:23:54 PM PDT by quant5
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