Shadows appear to me to be of supreme importance in perspective, because, without them opaque and solid bodies will be ill defined. Shadow is the means by which bodies display their form. The forms of bodies could not be understood in detail but for shadow.
— Leonardo Da Vinci
***
Edit June 2018: I held the presentation again this month and improved the slides and content. See newest version here.
***
I held the above titled presentation at the Freie Univeristät Berlin as part of a lecture series about financial crises and the monetary system. Since the presentation was unfortunately not recorded, I post everything related to it below:
First of all, I always start my presentations with this excellent animation video by Jonathan Jarvis explaining some aspects of the Global Financial Crisis of 2008.
The presentation then continues with the following slides.
The ultimate goal would be to be able to understand – though not necessarily agree with – the following two Zero Hedge master pieces:
- Desperately Seeking $11.2 Trillion In Collateral, Or How “Modern Money” Really Works
- $707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months
The sources of this presentation are mainly the following papers and reports
- Haircuts – Gorton and Metrick (2010)
- Are The Brokers Broken – Matt King (2008)
- Global Shadow Banking Monitoring Report 2013 – Financial Stability Board (2013)
- Shadow Banking – Pozsar et al. (2013)
together with these two Zero Hedge articles
- Is This The Scariest Chart For Central Banks?
- “Nothing Else Matters”: Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017
and also mentioned were the following three Ted Talks
- Doesn’t Everyone Deserve A Change At A Good Life? by Jim Yong Kim
- We Need Money For Aid. So Let’s Print It by Michael Metcalfe
- A Provocative Way To Finance The Fight Against Climate Change by Michael Metcalfe
For a facilitated dive into the shadow banking rabbit hole, I further recommend the following Zero Hedge articles. (Hint: they discuss the above mentioned papers and reports in maybe a slightly more understandable manner.)
- On The Verge Of A Historic Inversion In Shadow Banking
- Fed’s John Williams Opens Mouth, Proves He Has No Clue About Modern Money Creation
- The Fed Has Another $3.9 Trillion In QE To Go (At Least)
- And Now, A Present: “Are The Brokers Broken?” – A Reprise
- Unfractional Repo Banking: When Leverage Is “Limited” By Infinity
- The Unspoken, Festering Secret At The Heart Of Shadow Banking: “Self-Securitization” … With Central Banks
- Shadow Rehypothecation, Infinite Leverage, And Why Breaking The Tyranny Of Ignorance Is The Only Solution
- Why The UK Trail Of The MF Global Collapse May Have “Apocalyptic” Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else
- Modern Market Alchemy Explained: Converting Junk Debt Into Supersafe Treasurys Out Of Thin Air
- How A Previously Secret Collateral Transformation With The Bank Of Italy Prevented Monte Paschi’s Nationalization
- The Ultimate “All-In” Trade
- Wall Street Banks Admit They Rigged CDS Prices Too
- Meet The 28 Other Money Market Funds That Broke The Buck After (And Before) Lehman
- An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility
- A Record $2 Trillion In Deposits Over Loans – The Fed’s Indirect Market Propping Pathway Exposed
- And even more stuff here
For even further reading about the shadow banking system, I also highly recommend Danielle DiMartino Booth’s latest book Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.
If you prefer movies, I would suggest the classic The Big Short (or the book version) and the far lesser known Money for Nothing: Inside the Federal Reserve.
Gordon Schücker 