Shadow Rehypothecation

[pmbug]

... from one of the best scholars of shadow banking, Gary Gorton ...the punchline: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization." Reread the last statement as it explains perhaps better than anything, the true functioning of modern capital markets and why they are terminally broken: in order to preserve the system, the banking cartel need to make everything of virtually infinite complexity so that no one has a clear understanding of what is going on! ...

http://www.zerohedge.com/news/shado...-why-breaking-tyrrany-ignorance-only-solution



The rehypothecation cat is out of the bag. The paper Ponzi is doomed. Take another minute off the doomsday clock.

 

[ancona]

The markets should be interesting next week. Very interesting.

 

[pmbug]

Same song; next verse:

Earlier today, the Financial Stability Board (FSB), one of the few transnational financial "supervisors" ..., issued a report on Shadow Banking. The report is about 3 years late (Zero Hedge has been following this topic since 2010), and is largely meaningless, coming to the same conclusion as all other historical regulatory observations into shadow banking have done in the recent past, namely that it is too big, too unwieldy, and too risky, but that little if anything can be done about it.
...
... recall that in a Keynesian system, credit creation = money creation = growth. Without "facile" credit creation, there is no growth period. The problem, however, is that the world is approaching its peak credit capacity across the various verticals: sovereign, financial, corporate non-financial, shadow, and of course, household. The reality is that unless some existing debt is not eliminated to make space for future "credit creation", there simply can not be growth, and the problem is that wiping out credit, means the equity tranches below it are worthless. And that is the Catch 22, because wiping out equity somewhere in the world, would have dramatic implications not only on the wealth of the 0.0001% but on credit and faith in a system, which only operates due to the inherent "credit" (hence the name) and "faith" in it. Without those, ultra-modern finance crumbles like a house of cards.

In other words, while the FSB, like any other prudent regulator, is diligently warning about the dangers associated with unprecedented leverage across shadow, and all other systems, in reality what it is saying is that the only way to resolve a record debt problem is... with more debt.
...

More: http://www.zerohedge.com/news/2012-...es-record-67-trillion-just-shy-100-global-gdp