But, 16 years (after the 2008 crisis), some experts believe new risks are emerging. And this time, they are linked to highly indebted companies backed by private equity firms, which are part of the growing but opaque portion of the financial system known as the shadow banking sector. Shadow banking refers to financial firms that face little to no regulation compared with traditional lenders, and includes businesses such as hedge funds, private credit and private equity funds.
While the use of securitisation dipped in the wake of the 2008 financial crisis, as a result of a tarnished reputation and regulatory backlash, its popularity has subsequently risen. Today, the global securitisation market covers about £4.7tn of assets, according to estimates by analysts at RBC Capital.
In this public market, bundled loans are rated by credit rating agencies and sold on to a broad range of investors, and their terms, structure and sales are openly disclosed. These are the routes typically taken by traditional banks, which face far more stringent regulation. The remaining £120bn is made up of securitised loans bundled up by the shadow banking sector. Private securities are sold directly to a limited pool of sophisticated investors. They are less regulated, need not be reviewed by ratings agencies, and are far more opaque.
Quickily, let’s remove more regulations to avoid this!
take some low risk loans and package them together to increase yield
trade packages with investors and banks
put those packages into huge CDOs, then make CDOs of CDOs, then essentially gamble on the value of said CDOs
morbillion dollars achieved
run out of low risk loans to package
Yolo, let’s just put all the loans in, what could possibly go wrong lol
8% of the poor plebs go delinquent on their predatory loans
2008 financial crash
lobby congress to bail you out so you get paid, tell everyone it was the fault of immigrants and poor people
repeat
GME stock owners be like “Yeah, we have been talking about that shit for years now!”
Savings banks that hold the money of normal people need to be split off from investment banks. So they can collapse and not use these savings as collateral for their risky behavior.
This used to be the law in the US. It was stupidly undone during the Clinton administration.
