Too Much to Lose
YouTube? provides endless access to videos about the shadow banking system. Recently I viewed an Oct. 23, 2009, presentation by Darrell Duffie, Distinguished Professor of Management and Finance at Stanford University’s Graduate School of Business. Duffie is ubiquitous when it comes to the discussions on shadow banking. He has written extensively about it, and it is safe to say is held in the highest esteem by his cohort. The title of the presentation is “Failure Mechanics of Dealer Banks.”
Herein lies the problem. When academics are ensconced in the ongoing dialogue it imbues the shadow banking system with an aura of respectability. Like it is deserving of a thorough, thoughtful analysis, when in fact the entire system is insane.
Early on in my book, “Repo Madness: A Simpleton’s Guide to the Street’s Wicked Ways,” I quote Franklin R. Edwards, an economist addressing the Fed’s 1987 annual symposium. He said, “The idea that this system may in some way be seriously flawed is an alien thought. The notion it should be drastically changed shocks us…But the world is changing, and the financial system is no longer working well.”
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The problem with Duffie and his ilk is that their discussion and analysis is restricted to within the shadow banking system. Watching the Duffie of 2009, one is struck by his naivete. He says "We need the plumbing, the valves, the pipes, the joints, the tubes –to be very robust, safe-big diameter, to take big gushes of risk, of capital flows without breaking and one of them is not going to bring down the rest.”
“Big gushes of risk?” It is nice in theory, but it is not reality. The so-called plumbing is out of control and beyond the ken of any one person or even institution. Efforts to rein it in have proved futile and yet, the years pass, and the lectures continue. What we are not privy to are the ideas put forth by those who want to scrap the entire system. To implement reforms that are democratic, inclusive, and radical. Why? Because they are silenced. There is too much to lose.?