One last thing (from the NY Fed): “Intermediaries create liquidity in the shadow banking system by levering up the collateral value of their assets. However, the liquidity creation comes at the cost of financial fragility as fluctuations in uncertainty cause a flight to quality from shadow liabilities to safe assets. The collapse of shadow banking liquidity has real effects via the pricing of credit and generates prolonged slumps after adverse shocks.” Repeat: “liquidity creation comes at the cost of financial fragility as fluctuations in uncertainty cause a flight to quality from shadow liabilities to safe assets.” Can you believe it? The Fed doesn’t even try to deny what’s going on. They admit that letting the banks ratchet up their leverage increases “financial fragility ” which could precipitate another crash. (“flight to quality from shadow liabilities to safe assets.”) In other words, the Fed KNOWS the system is nuts, just like they know that it’s only a matter of time before the whole bloody thing blows up again and the economy goes off the cliff. Still, they’re not going to lift a finger to change the system. Why? You know why. Because a few fatcats at the top like the way things are now, that’s why.counterpunch.org/2013/10/23/repo-baby-repo/
Posted on: Wed, 23 Oct 2013 14:29:39 +0000
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