WEBVTT - Shadow Banking: The Once and Future Economic Apocalypse 0:00:01.720 --> 0:00:04.960 Cool Zone Media. 0:00:06.680 --> 0:00:10.240 Welcome to it could happen here podcasts where a bunch 0:00:10.280 --> 0:00:14.040 of incredibly convoluted and very silly financial instruments to shore 0:00:14.080 --> 0:00:16.680 the entire world economy. I am your host, Bia Wong, 0:00:17.239 --> 0:00:20.320 and with me today is someone who does not spend 0:00:20.400 --> 0:00:23.760 all of her time deep in the bowels of arcane 0:00:24.480 --> 0:00:28.080 bullshit written by different Federal Reserve boards, and that is 0:00:28.120 --> 0:00:32.280 Maldy Conger, who is the host of the absolutely delightful 0:00:32.360 --> 0:00:35.199 I mean, okay, I guess this is a who is 0:00:35.320 --> 0:00:40.280 really winning here kind of christ in terms of the things. 0:00:40.680 --> 0:00:43.320 Research, Yeah, you spent a lot of time reading stuff 0:00:43.360 --> 0:00:46.320 written by Federal Reserve guys. I read a lot of 0:00:46.320 --> 0:00:48.720 stuff written by guys who want to kill the Federal 0:00:48.760 --> 0:00:49.520 Reserve guys. 0:00:49.840 --> 0:00:51.200 Yeah. 0:00:51.320 --> 0:00:53.920 I still don't know what the Federal Reserve is, and 0:00:54.000 --> 0:00:55.040 I'm not gonna find out. 0:00:56.160 --> 0:01:00.840 You know, I don't actually think knowing what Federal Reserve 0:01:00.960 --> 0:01:01.959 is somehow. 0:01:01.760 --> 0:01:02.600 It doesn't change anything. 0:01:02.640 --> 0:01:05.040 And I don't think it's actually relevant to this app 0:01:05.120 --> 0:01:07.440 I mean it kind of. It's obviously it's relevant to everything. 0:01:07.440 --> 0:01:11.039 But means to say is the reason I'm here is 0:01:11.040 --> 0:01:13.080 because I don't know what the economy is, and at 0:01:13.080 --> 0:01:14.959 this point, I'm afraid to find out. 0:01:15.480 --> 0:01:17.720 And unfortunately your worst fears are happening. 0:01:18.000 --> 0:01:20.520 Don't worry. By the end of this I will not understand. 0:01:21.200 --> 0:01:24.880 I am going to attempt to explain the economy, and 0:01:24.959 --> 0:01:29.880 by by the economy, I mean shadow banking. Yeah. 0:01:29.920 --> 0:01:32.080 Also, before before I go into this, though, you should, 0:01:32.080 --> 0:01:34.600 you should listen to Weird Little Guys. It is It's 0:01:34.720 --> 0:01:37.559 it's really good. I like it all my friends really 0:01:37.600 --> 0:01:37.920 like it. 0:01:38.280 --> 0:01:38.720 Thank you. 0:01:39.120 --> 0:01:45.480 Yeah, it's somehow a nice comma kind of relaxing show 0:01:45.600 --> 0:01:48.400 about neo Nazis. 0:01:48.480 --> 0:01:53.440 So that's very chill vibes. Yeah for a show about 0:01:53.440 --> 0:01:55.080 guys who are trying to like blow up school bus. 0:01:55.120 --> 0:01:55.960 Yes, yep. 0:01:57.160 --> 0:02:00.040 So all right, you know I'm reading this. I'm looking 0:02:00.080 --> 0:02:01.280 over the script. 0:02:01.240 --> 0:02:04.600 Miraculously this isn't a wait hold on, I think I 0:02:04.680 --> 0:02:05.200 cut the part. 0:02:05.080 --> 0:02:06.360 Where people blew up school buses. 0:02:06.520 --> 0:02:08.959 There was legitimately a segment in here that I might 0:02:09.000 --> 0:02:11.640 put back in or someone blows up a school bus. 0:02:11.800 --> 0:02:14.040 But what a crossover event. 0:02:14.600 --> 0:02:17.520 Oh boy, oh boy, the Saudi is really good at 0:02:17.520 --> 0:02:21.680 that shit. It turns out, uh okay, okay, But let 0:02:21.760 --> 0:02:23.800 let's get back to the topic at hand, which is 0:02:24.400 --> 0:02:27.320 what is shadow banking, and why does it matter to 0:02:27.520 --> 0:02:29.880 all of us people who live in the normal real 0:02:29.919 --> 0:02:32.120 world and not in fake finance world. 0:02:32.960 --> 0:02:36.959 Does it have anything to do with shadow wolves? Unfortately, 0:02:37.240 --> 0:02:39.359 note what about shadow facts? 0:02:39.400 --> 0:02:43.799 Sadly, actually, there probably is a connection between the financing 0:02:43.840 --> 0:02:46.760 for the Lord of the Rings movies and shadow banking. 0:02:47.160 --> 0:02:49.480 I'm just too tired to work it right now. 0:02:50.000 --> 0:02:52.880 I've dragged us off track. We haven't even gotten on 0:02:53.000 --> 0:02:54.320 track yet. What is shadow bank? 0:02:54.520 --> 0:02:57.080 Okay, so the good news, the good news this is 0:02:57.120 --> 0:02:59.320 this is the first it's not the last piece of 0:02:59.320 --> 0:03:02.800 good news. We're gonna ge this episode, but come the 0:03:02.880 --> 0:03:07.919 definition used by most non academics is actually not that bad. 0:03:08.720 --> 0:03:10.359 There's a pretty good. 0:03:10.360 --> 0:03:13.240 It's very wishy washy because it's a congressional report and 0:03:13.240 --> 0:03:15.760 so it's specifically not supposed to be taking a stance 0:03:15.800 --> 0:03:18.760 in either direction on anything, because it's it's the Congressional 0:03:18.760 --> 0:03:20.720 Review Office, and they're supposed to be neutral, et cetera, 0:03:20.760 --> 0:03:24.240 et cetera. Allegedly, yeah, right, you know, and like obviously 0:03:24.240 --> 0:03:27.880 they're not, but like you know, it's like kind of 0:03:28.000 --> 0:03:31.480 fine congressional report on the subject, and they do the 0:03:31.520 --> 0:03:35.680 thing that almost everyone does, which is they go back 0:03:35.760 --> 0:03:40.680 to the definition created by the Financial Stability Board, and 0:03:40.760 --> 0:03:42.920 I'm just gonna I'm just gonna quote that because it's 0:03:43.400 --> 0:03:48.960 not that bad. Quote financial activities facilitated by institutions other 0:03:49.040 --> 0:03:52.480 than central banks, banks or public financial institutions. 0:03:53.520 --> 0:03:56.480 So it's banking that doesn't involve a bank. Yeah, canceled, 0:03:56.560 --> 0:03:57.840 I'm out. I'm out already. 0:03:58.120 --> 0:03:58.320 Yes. 0:03:59.200 --> 0:04:03.800 And they don't mean like me loaning you twenty dollars, no, no, no, 0:04:04.000 --> 0:04:07.840 of course not. They just mean unregulated banking. Oh yeah, 0:04:08.040 --> 0:04:09.760 which you can't legally call banking. 0:04:10.400 --> 0:04:12.920 I mean you actually can't legally call it banking. It's 0:04:13.040 --> 0:04:16.520 just things get weird really quickly. 0:04:16.600 --> 0:04:18.880 I mean, I'm not a bank understander, but I know, 0:04:18.920 --> 0:04:21.919 at least in Virginia, you can't incorporate a business that 0:04:21.960 --> 0:04:24.320 has the word bank in the title unless you are 0:04:24.400 --> 0:04:27.159 legally a bank, because that's like misleading. 0:04:27.279 --> 0:04:29.440 Yeah, I don't think they can legally call themselves a bank, 0:04:29.480 --> 0:04:32.000 but I guess you can call it banking activity. 0:04:31.839 --> 0:04:33.200 That's stupid in a matter already. 0:04:33.520 --> 0:04:35.680 Yes. Oh, you're going to get so much more mad 0:04:35.720 --> 0:04:38.880 by the end of this. So the base definition is 0:04:39.080 --> 0:04:41.799 it's not that complicated, right, It's something that does banking 0:04:41.839 --> 0:04:45.120 stuff that is legally not a bank, you know, And 0:04:45.160 --> 0:04:49.240 so we could talk about what kinds of things is this, right, 0:04:49.800 --> 0:04:53.360 it's like private equity firms, it's hedge funds, it's venture 0:04:53.440 --> 0:04:54.520 capital firms. 0:04:55.040 --> 0:04:57.600 So it's like evil stuff that ruins the world for 0:04:57.640 --> 0:05:00.760 no reason except for like ten guys make money. Yeah. 0:05:00.800 --> 0:05:04.039 But it's also you know, pension funds. It's like insurance companies. 0:05:04.040 --> 0:05:08.080 It's sovereign wealth funds, business development companies, repot markets, broker dealers, 0:05:08.279 --> 0:05:12.560 special investment vehicles, securitization vehicles, money market mutual funds, assay 0:05:12.680 --> 0:05:14.400 backed commercial paper conduits. 0:05:14.800 --> 0:05:17.960 Hey thing, bud. Most of those things you just said 0:05:17.960 --> 0:05:20.120 to me are fake and they make me upset. 0:05:20.680 --> 0:05:21.719 It's really bad. 0:05:22.000 --> 0:05:26.839 Sovereign wealth funds. Shut up, that's not that's nothing. I 0:05:26.880 --> 0:05:29.279 still you know, all these all these things are just 0:05:29.279 --> 0:05:32.360 like different ways of saying like you're poor and you're 0:05:32.360 --> 0:05:33.000 gonna die. 0:05:33.120 --> 0:05:33.320 Yeah. 0:05:33.320 --> 0:05:34.919 I mean, the funny thing is sovereign wealth fund is 0:05:34.960 --> 0:05:38.080 like kind of a less fake one in that it's 0:05:38.200 --> 0:05:41.039 like fake, Hey, this is like a fake. It's the well, 0:05:41.080 --> 0:05:43.320 it's like this is the Kingdom of Saudi Arabia has 0:05:43.360 --> 0:05:45.520 pooled all of the money it's gotten from. It's like 0:05:45.800 --> 0:05:49.120 horrific crimes and put them together into one giant thing, 0:05:49.160 --> 0:05:50.440 and that's a sovereign wealth fund. 0:05:50.880 --> 0:05:52.360 Oh so it's good, it's what you mean. 0:05:54.400 --> 0:05:57.160 No, I am a notable. There is, by the way, 0:05:57.160 --> 0:05:59.360 a camp of people who believe that sovereign wealth funds 0:05:59.360 --> 0:06:01.440 are like a social list thing and that you could 0:06:01.520 --> 0:06:02.560 use them to do socialism. 0:06:02.640 --> 0:06:03.760 I'm going to jump out the window. 0:06:03.880 --> 0:06:06.880 I think this is so stupid. Yeah, this is we 0:06:07.120 --> 0:06:10.560 haven't even gotten into the nightmare stuff. So remember I 0:06:10.600 --> 0:06:14.360 was talking about the Financial Stability Board definition in that 0:06:14.400 --> 0:06:16.800 congressional report right where it's like, okay, this is a 0:06:16.839 --> 0:06:18.880 bank that does non banking stuff or a non bank 0:06:18.880 --> 0:06:19.640 that does banking stuff. 0:06:19.640 --> 0:06:21.640 Sorry, oh, I guess we should say I guess we 0:06:21.720 --> 0:06:24.000 forgot to say at the top. The reason you're explaining 0:06:24.040 --> 0:06:26.279 shadow banking to me is because we saw an article 0:06:26.360 --> 0:06:30.320 last week that what those those not banks were putting 0:06:30.320 --> 0:06:33.359 a stop on withdrawals from their not banks and I 0:06:33.400 --> 0:06:34.640 didn't know what that meant. 0:06:34.880 --> 0:06:38.840 Yeah, that's amazingly this this is so convoluted. 0:06:38.920 --> 0:06:40.640 We're not even going to get to that this week. 0:06:40.560 --> 0:06:43.880 Right, But like that's that's why we're explaining that's why, right, 0:06:43.960 --> 0:06:45.520 there's like, yeah, there's like there was like a mini 0:06:45.520 --> 0:06:47.960 bank run going on with these like shadow banks, no 0:06:48.080 --> 0:06:51.440 stop banks. Yeah, so we're going to get into how 0:06:51.520 --> 0:06:54.200 that can happen and why. But but before we get there, 0:06:54.279 --> 0:06:56.880 we need to talk about all, right, to get a 0:06:56.920 --> 0:06:59.920 sense of the complexity of this. Right, the Congressional report, 0:07:00.600 --> 0:07:03.960 like the accepted terminology for this is not shadow banks, it. 0:07:03.920 --> 0:07:05.960 Is, right, that can't be their official name. That's not 0:07:06.000 --> 0:07:06.800 their government name. 0:07:07.440 --> 0:07:11.120 No, it's it's non bank financial intermediation. 0:07:12.000 --> 0:07:13.240 Now what the fuck is that? 0:07:13.320 --> 0:07:15.280 And this is where this episode goes completely off the 0:07:15.360 --> 0:07:19.720 rails because the components of what count as intermediation are 0:07:19.800 --> 0:07:22.240 so complicated. I am not going to try to describe 0:07:22.280 --> 0:07:23.800 it until literally the end of this. 0:07:24.080 --> 0:07:26.720 I mean, is it like what is Venmo officially? Really? 0:07:26.800 --> 0:07:30.280 Venmo's not a bank, but it provides like financial services. 0:07:30.840 --> 0:07:33.440 Actually, I it by. 0:07:33.360 --> 0:07:35.360 Because it's because it's like a financial intermediary. 0:07:35.480 --> 0:07:38.480 Right, Yeah, it might technically be a non bank. I 0:07:39.120 --> 0:07:41.520 don't know what the regulatory structure is. 0:07:41.560 --> 0:07:44.040 It's not legally about Yeah, I think I think that 0:07:44.160 --> 0:07:46.560 technically is one score one for Molie. 0:07:47.240 --> 0:07:50.520 Yeah, but okay, so this is this is gonna get 0:07:50.520 --> 0:07:55.000 really bad. Okay. So when I first started researching this episode, right, 0:07:55.040 --> 0:07:58.640 the first thing that I click on is is the 0:07:58.680 --> 0:08:02.840 Federal Reserves of how the shadow banking sector works compared 0:08:02.880 --> 0:08:04.880 to the nomal banking sector. Molly, you have seen this 0:08:05.800 --> 0:08:08.119 because I posted it as a joke in our group chat. 0:08:08.960 --> 0:08:09.679 This chart. 0:08:10.800 --> 0:08:13.440 I have like a very very large, like it is 0:08:13.480 --> 0:08:16.280 like a big, normal ass size monitor that I like 0:08:16.320 --> 0:08:19.320 to do my work on. I had to zoom in 0:08:19.360 --> 0:08:22.480 to three hundred and eighty percent just to make out 0:08:22.600 --> 0:08:26.200 the letters that label the boxes on this chart. If 0:08:26.240 --> 0:08:28.480 you want to read it, you have to zoom into 0:08:28.520 --> 0:08:30.000 five hundred percent. 0:08:30.480 --> 0:08:32.000 That doesn't seem like a well made chart. 0:08:32.840 --> 0:08:35.280 No, here's the thing, it's actually really good. It's just 0:08:35.360 --> 0:08:40.000 this complicated. I learned later from a paper by Copenhagen 0:08:40.040 --> 0:08:44.280 Business School professor Odny Helga Daughter. We're gonna come back 0:08:44.320 --> 0:08:47.600 to Hellga Daughter's work a lot in this episode, but 0:08:48.000 --> 0:08:51.120 I learned from from her because she has also experienced 0:08:51.120 --> 0:08:53.960 seeing this same chart and going what the is this 0:08:54.040 --> 0:08:57.240 fuck ass chart? I found out that the Federal Reserve 0:08:57.320 --> 0:09:00.800 recommends that in order to have the diagram be legible, 0:09:01.200 --> 0:09:04.960 you're supposed to print this chart as a three foot 0:09:05.080 --> 0:09:06.640 by four foot poster. 0:09:07.200 --> 0:09:10.160 Oh that makes sense, like meeting style. But like we're 0:09:11.040 --> 0:09:11.720 we're on easel. 0:09:11.960 --> 0:09:14.360 Yeah right, But like again, this is this is a 0:09:14.480 --> 0:09:18.320 diagram that he's just labeling the parts of the system 0:09:18.679 --> 0:09:21.360 and making and making like a line that shows how 0:09:21.400 --> 0:09:22.480 stuff moves through it. 0:09:22.720 --> 0:09:25.319 I guess I still don't know what we're talking about. 0:09:27.120 --> 0:09:29.120 Yeah, so this is what we're going to get into 0:09:29.240 --> 0:09:31.600 in a second. But first we have to talk about 0:09:31.640 --> 0:09:34.240 something even more bleak, which is that. Oh yeah, by 0:09:34.240 --> 0:09:36.920 the way, these like non banking bank things like these 0:09:36.960 --> 0:09:39.240 like all these like venture capital firms, all these hedge funds, 0:09:39.280 --> 0:09:44.880 all these fucking weird, ghoulish banks that are off banks. Uh. Yeah, 0:09:44.880 --> 0:09:48.280 they have twice as many assets than the regular banking system. 0:09:48.679 --> 0:09:50.400 Oh that doesn't seem good. 0:09:50.520 --> 0:09:52.959 Oh it's about to get worse. It's about to get worse, Molly. 0:09:53.360 --> 0:09:55.920 That's that's like saying I keep seventy percent of the 0:09:55.920 --> 0:09:58.520 food in my house outside on the porch, like it 0:09:58.520 --> 0:09:59.360 goes in the fridge. 0:09:59.440 --> 0:10:01.600 Oh oh, oh, it's so bad, it's so bad. 0:10:02.520 --> 0:10:05.600 So okay, there's a pretty good congressional report that I 0:10:05.600 --> 0:10:09.760 was talking about earlier that has this terrifying quote quote. 0:10:09.880 --> 0:10:13.679 As of twenty twenty three, the broad measured total financial 0:10:13.720 --> 0:10:17.920 assets and narrow measure assets at nbfisis. 0:10:17.160 --> 0:10:20.000 Is the shadow banks. 0:10:19.040 --> 0:10:24.400 Reached eighty five point seven trillion dollars and twenty two 0:10:24.480 --> 0:10:28.160 point two trillion dollars, respectively in the United States. 0:10:28.280 --> 0:10:30.160 But that's more than our GDP. 0:10:30.679 --> 0:10:33.240 That's almost three times our GDP. 0:10:33.440 --> 0:10:36.920 So that's a fake amount of money. Yes, that's not real. 0:10:36.800 --> 0:10:40.640 At all, but it kind of is. Right, These compared 0:10:40.679 --> 0:10:43.959 to total financial assets of thirty one point one trillion 0:10:44.000 --> 0:10:48.079 dollars at banks in the same period. So again this 0:10:47.960 --> 0:10:50.840 is this is almost three times our GDP in assets 0:10:50.880 --> 0:10:52.199 that they manage or control. 0:10:52.440 --> 0:10:55.040 So where does the money live? 0:10:55.679 --> 0:11:01.760 In a whole bunch of unbelievably calm, eluded bullshit like 0:11:02.120 --> 0:11:05.240 combinations of like loans and real estate and stuff like 0:11:05.280 --> 0:11:06.760 that real money. 0:11:06.800 --> 0:11:09.680 So like, okay, imagine this is schoolhouse rock and instead 0:11:09.720 --> 0:11:12.600 of the singing bill, you're like a dollar bill, Like 0:11:12.720 --> 0:11:17.600 where are you we are about to explain this where 0:11:17.640 --> 0:11:18.800 does the money live? 0:11:19.840 --> 0:11:20.120 Yeah? 0:11:20.160 --> 0:11:23.920 So okay, okay, we're we are about one huge paragraphs 0:11:23.920 --> 0:11:27.520 away from getting to this or like one paragraph Okay, 0:11:27.600 --> 0:11:29.720 So the other thing that's very important about this, and 0:11:29.720 --> 0:11:31.400 this is something Mollie was kind of touching out the 0:11:31.400 --> 0:11:32.719 beginning to get the appen So maybe I should have 0:11:32.760 --> 0:11:35.439 opened with this. Yeah, these people, these are the people 0:11:35.480 --> 0:11:37.439 who blew up the economy in two thousand and eight. 0:11:38.000 --> 0:11:39.920 Yeah, because they're making stuff up. 0:11:40.160 --> 0:11:43.240 Yeah, it's so, it's so bullshit, Molly, You're gonna get 0:11:43.280 --> 0:11:43.960 so mad. 0:11:44.000 --> 0:11:45.920 If this is Calvin Ball, fuck you I win. 0:11:46.240 --> 0:11:50.560 Yeah, it literally is. It's nonsense. It's gibberish. They're doing 0:11:50.600 --> 0:11:53.240 fucking betting markets with the entire world economy. 0:11:53.360 --> 0:11:54.679 Oh yeah, we can all do that now. 0:11:55.720 --> 0:11:58.480 Yeah, it's fun. It's like we now have the power 0:11:58.520 --> 0:12:00.959 to do the shit that destroyed the world economy in 0:12:00.960 --> 0:12:03.520 two thousand and eight. So that The thing about shadow banking, 0:12:03.559 --> 0:12:06.120 and the reason why it's complicated to explain is that 0:12:06.960 --> 0:12:10.360 it's a catch all term for like a million types of. 0:12:10.320 --> 0:12:11.880 Institutions that do different things. 0:12:12.360 --> 0:12:15.760 Right, the commonality they have is that they're all not 0:12:15.920 --> 0:12:18.600 regulated by the banking regulations. 0:12:18.960 --> 0:12:20.640 Right, It's like, we found a way to do financial 0:12:20.679 --> 0:12:23.360 crime that's not illegal because they forgot to make this illegal. 0:12:23.640 --> 0:12:26.320 Yeah, and you know, but but the thing is it's 0:12:26.360 --> 0:12:30.559 so embedded into the system that, like the US debt 0:12:31.040 --> 0:12:35.520 working is dependent on the shadow banks buying it. 0:12:36.200 --> 0:12:38.160 Like I don't believe in that either, So I'm good. 0:12:38.280 --> 0:12:39.880 Oh it's so fake, Molly. 0:12:39.920 --> 0:12:41.720 I'm not even going to attempt to explain what an 0:12:41.720 --> 0:12:44.960 overnight repo purchases to you, because it's the fakest thing 0:12:44.960 --> 0:12:48.280 I've ever seen. Where they make one trillion dollars exist 0:12:48.360 --> 0:12:50.079 overnight and then it stops existing at the end of 0:12:50.080 --> 0:12:50.360 the night. 0:12:50.520 --> 0:12:51.320 It's incredible. 0:12:51.840 --> 0:12:53.680 I love how much of the economy is based on 0:12:53.760 --> 0:12:56.360 guys just imagining stuff and agreeing on the thing they 0:12:56.400 --> 0:12:59.120 imagined and then trading their imaginary tokens like this is 0:12:59.120 --> 0:13:00.200 fucking Pog's. 0:13:00.520 --> 0:13:03.280 Yep, this is this, this, this is this is unfortunately 0:13:03.760 --> 0:13:06.240 what what our entire world is based on. It's so fun. 0:13:07.520 --> 0:13:11.280 Oh god, Okay, So what is actually shadow banking? 0:13:11.760 --> 0:13:12.440 I've given you. 0:13:12.360 --> 0:13:15.360 Like the broadest definition possible, which is like it again, 0:13:15.440 --> 0:13:17.800 it's the it's doing bank ship without being a bank. 0:13:18.360 --> 0:13:21.160 But let's go back to the beginning of the term, 0:13:21.640 --> 0:13:24.840 which is where most people tend to start or get 0:13:24.880 --> 0:13:28.280 to eventually. This is from an IMF paper quote. The 0:13:28.400 --> 0:13:31.800 term shadow bank was coined by economist Paul mccolly at 0:13:31.800 --> 0:13:34.720 a two thousand and seven speech at the Annual Financial 0:13:34.760 --> 0:13:37.839 Symposium hosted by the Kansas City Federal Reserve Bank in 0:13:37.920 --> 0:13:44.240 Jackson Hole, Wyoming. And basically, it's institutions that borrow money 0:13:44.240 --> 0:13:47.360 in the short term through money markets to finance long 0:13:47.440 --> 0:13:51.080 term loans. But they aren't banks, so they can't go 0:13:51.160 --> 0:13:51.679 through the FED. 0:13:52.320 --> 0:13:54.400 They're financing loans with other loans. 0:13:54.559 --> 0:13:57.120 Yeah, we're gonna so from from from a not bank. 0:13:57.400 --> 0:13:59.360 Yeah, but the big loan is from a real bank, 0:13:59.400 --> 0:14:01.199 and then the little loan is from a fake bank. 0:14:01.679 --> 0:14:03.360 Give me none of the money is read. 0:14:03.280 --> 0:14:06.560 Hold on, hold on, Okay, we're going to get there. 0:14:06.360 --> 0:14:08.600 We're going to explain this in terms of burgers. It's 0:14:08.600 --> 0:14:09.280 going to be okay. 0:14:09.840 --> 0:14:11.520 I believe in us perfect, perfect, Yes. 0:14:11.760 --> 0:14:14.400 But the other thing he describes is, and this is 0:14:14.400 --> 0:14:17.480 from Helga daughter quote in the speech, he describes shadow 0:14:17.520 --> 0:14:22.760 banking as the whole alphabet soup of leveraged up investment conduits, vehicles, 0:14:22.760 --> 0:14:26.520 and structures. So what he's talking about specifically is these 0:14:26.520 --> 0:14:28.080 are the guys who blew up the economy two does 0:14:28.240 --> 0:14:30.640 eight like these specifically, this is what he's talking about, right, 0:14:31.000 --> 0:14:33.520 These are the people who took a mortgage and then 0:14:33.800 --> 0:14:35.840 did a bunch of bullshit to it, and what's called 0:14:35.840 --> 0:14:38.960 a securitization chain. They did a bunch of bullshit to 0:14:39.000 --> 0:14:40.720 it so you could give the loan to someone else, 0:14:41.080 --> 0:14:43.040 you could sell to someone else, and this blew up 0:14:43.040 --> 0:14:44.040 the entire world economy. 0:14:44.040 --> 0:14:45.680 That's what he's talking about. He's talking about the. 0:14:45.640 --> 0:14:48.920 Banks that are not banks, the shadow banks that did 0:14:48.960 --> 0:14:53.000 all of this bullshit to turn like someone's mortgage into 0:14:53.280 --> 0:14:54.720 a fucking thing you could bet on. 0:14:55.280 --> 0:15:01.200 So selling debt is like selling the idea of future money. Yeah, 0:15:01.240 --> 0:15:03.440 and then sometimes that future money doesn't come. 0:15:03.600 --> 0:15:04.880 Yeah, so it doesn't exist. 0:15:05.160 --> 0:15:07.880 So okay, I will say, you do not need to 0:15:07.960 --> 0:15:09.680 understand this yet, because we haven't. 0:15:09.720 --> 0:15:11.160 We still have not already the actual explanation. 0:15:11.280 --> 0:15:12.120 I'm never going to. 0:15:12.440 --> 0:15:14.760 I believe in us. We can do this. It's not 0:15:14.880 --> 0:15:16.640 that bad, Okay. 0:15:16.680 --> 0:15:17.960 I'm not torturing your on purpose. 0:15:18.000 --> 0:15:22.200 I'm just no, it's okay, I believe in you. So 0:15:22.320 --> 0:15:24.800 I want to mention that I'm very indebted here to 0:15:25.120 --> 0:15:28.800 the paper I mentioned earlier from Copenhagen Business School professor 0:15:28.840 --> 0:15:32.240 Adny Helga Daughter who wrote of she wrote a very 0:15:32.240 --> 0:15:35.200 good simplified explanation of this in her Review of International 0:15:35.280 --> 0:15:39.280 Political Economy article called Banking Upside Down the Implicit Politics 0:15:39.280 --> 0:15:43.320 of Shadow Banking Expertise. But okay, as you can tell 0:15:43.360 --> 0:15:47.000 by the fact that it's called Banking upside Down the 0:15:47.040 --> 0:15:50.480 Implicit Politics of Shadow Banking Expertise, this has been when 0:15:50.520 --> 0:15:54.600 she's simplifying it. She's simplifying it from like economists down 0:15:54.640 --> 0:15:58.160 to like a political scientist or an anthropologist can understand this. 0:15:58.880 --> 0:16:01.680 I am about to attempt to simplify this down to 0:16:02.600 --> 0:16:03.560 a regular person. 0:16:03.800 --> 0:16:06.320 Can I understand this? So I'm drawing on. 0:16:06.360 --> 0:16:08.440 A lot of her stuff for the first part of 0:16:08.440 --> 0:16:12.640 this explanation, but I am I've turned it into burgers. 0:16:12.800 --> 0:16:15.520 So I'll do my best. I'm being very brave. 0:16:15.880 --> 0:16:16.080 Okay. 0:16:16.120 --> 0:16:19.200 So a shadow bank, right, it's something that does banking shit. 0:16:19.320 --> 0:16:20.840 That's not a bank. So what do I mean by 0:16:20.920 --> 0:16:21.560 banking shit? 0:16:22.240 --> 0:16:24.520 That was my next question. Yes, I think we need 0:16:24.520 --> 0:16:26.400 to start with what is a bank? Yes? 0:16:26.520 --> 0:16:28.560 So first, so okay, okay, and this is this is 0:16:28.640 --> 0:16:29.760 this is where we're starting here. 0:16:30.520 --> 0:16:31.840 What does a bank do? 0:16:32.520 --> 0:16:34.520 I put my money in it and they hold it 0:16:34.560 --> 0:16:34.800 for me. 0:16:35.080 --> 0:16:37.840 So no, actually, and this is the interesting part. 0:16:38.000 --> 0:16:40.800 No, they do stuff with it. Oh yeah, they're holding 0:16:40.840 --> 0:16:42.200 onto the promise of my money. 0:16:42.760 --> 0:16:45.040 Yeah, so okay, let's let's just let's just look at 0:16:45.040 --> 0:16:47.680 this for a second. So okay, So regular people give 0:16:47.680 --> 0:16:49.240 them money to store in the bank. 0:16:49.320 --> 0:16:50.360 This is called a deposit. 0:16:51.080 --> 0:16:54.480 The bank takes your money and loans it out right 0:16:54.520 --> 0:16:57.920 and uses that to make more money. This is how 0:16:57.960 --> 0:17:00.520 it pays you interest, right, is that it's it's taking 0:17:00.560 --> 0:17:03.640 your money and it's loaning it out to other people. 0:17:03.680 --> 0:17:04.760 It's buying things with it. 0:17:04.960 --> 0:17:05.960 That part I understand. 0:17:06.080 --> 0:17:08.760 Yeah, and this is obviously a cartoon image. And I 0:17:08.800 --> 0:17:10.440 know there's gonna be econ people who are gonna be 0:17:10.440 --> 0:17:13.720 mad at me. Look, if you understand, why. 0:17:13.600 --> 0:17:15.320 Are they listening to this? If you already know what 0:17:15.320 --> 0:17:19.520 this means, go away. This isn't for you. I'm not 0:17:19.600 --> 0:17:21.439 humiliating myself for your entertainment, Like. 0:17:21.640 --> 0:17:23.359 For the political economy people here. 0:17:23.640 --> 0:17:27.040 When I say stuff that might that's like technically kind 0:17:27.119 --> 0:17:27.680 of fuzzy. 0:17:28.200 --> 0:17:29.920 It's for me the podcast idiot. 0:17:30.160 --> 0:17:32.600 Yeah, like you you understand this, Like I work at 0:17:32.640 --> 0:17:35.159 the level of Hamburgers here, so like we have to 0:17:35.160 --> 0:17:36.040 do some abstractions. 0:17:36.600 --> 0:17:39.639 So okay, the important thing for our purposes. 0:17:40.040 --> 0:17:42.040 Right, is that there's two things here, right, There's like 0:17:42.200 --> 0:17:44.920 the deposits, the money you give them, and then there's 0:17:44.960 --> 0:17:49.000 the loans, right, and these operates on different timelines. Right. 0:17:49.440 --> 0:17:51.120 You can take the deposit. 0:17:50.680 --> 0:17:53.639 Out at any time, least in theory, but they can't 0:17:53.720 --> 0:17:55.880 get the money from the loan back at any time. 0:17:56.119 --> 0:18:00.600 Right now, This is like one of the critical things of. 0:18:00.520 --> 0:18:04.200 What a bank is is is this timeline thing. Right. 0:18:04.280 --> 0:18:07.719 It turns your your money, which you can take out 0:18:07.720 --> 0:18:11.440 at any time, into a different kind of thing, this loan, 0:18:11.640 --> 0:18:14.919 which can't be taken out immediately, right, and then they 0:18:14.960 --> 0:18:20.040 use that to make money. So this is called maturity transformation. 0:18:20.640 --> 0:18:23.640 This is a very simple concept they have made very complicated. 0:18:24.119 --> 0:18:26.280 This is one of the core aspects of that definition 0:18:26.320 --> 0:18:27.560 I was talking about earlier. This is one of the 0:18:27.560 --> 0:18:30.520 four things in it. But you now understand this. It's 0:18:30.520 --> 0:18:33.200 not that complicated. It's it's takes short term make long 0:18:33.320 --> 0:18:36.399 term and we'll get to doing the reverse in a second. 0:18:36.680 --> 0:18:38.600 Oh, I don't think it works the other way. 0:18:38.800 --> 0:18:42.600 Yeah, it's gonna go so badly. It's so badly. 0:18:42.720 --> 0:18:45.119 I don't know about bank, but just generally speaking, like 0:18:45.160 --> 0:18:48.320 in terms of time and like how like material reality works. 0:18:48.359 --> 0:18:49.800