There is No Elsewhere in the Bank & Financial Crisis

Would it be that the world worked as CNN business writer, Anna Cooban, maintains in her April 6, 2023 article titled, “Banks are in turmoil, but a bigger financial crisis may be brewing elsewhere.”

Doesn’t she get it? There is no elsewhere. There is only the shadow banking system, which, in the wake of 2008, is alive and well, functioning on all cylinders and, according to Cooban, growing each year.

Cooban has the impression that banks and non-banks are somehow segregated. That the failure of a non-bank would be an isolated event, disruptive, but not destabilizing, to the entire financial system. What she fails to realize is that all these institutions are interconnected. All participate in the massive repurchase agreement market and engage in myriad financial gymnastics to generate revenues for their respective bottom lines. Not for me or you, but for them.

“Elsewhere” would be a meaningful term if former Fed official and FDIC official, Thomas Hoenig, got his way. In 2012 he co-published a paper titled “Restructuring the Financial System for Safety & Soundness.” The basic premise was to permanently divide commercial and investment banks. Only commercial banks would have the government safety net, and, were it realized then, we could say with confidence that the threat to markets is “elsewhere.”

Elsewhere would refer to banks that take risks at their own peril. But Hoenig’s paper never saw the light of day so “elsewhere” is in fact “everywhere,” and sadly, there’s no sugarcoating the idea that systemic risk looms over us every day. And it is only a matter of time until the music stops once again.

To learn about the shadow banking system read my book, “Repo Madness: A Simpleton’s Guide to the Street’s Wicked Ways.” It is available on Amazon and Barnes & Noble.