Thursday, 21 November 2013

"Self-securitization" - shadow banking's dirty secret

Zero-Hedge are good.  I particularly like the phrase "...usually involving a 20 year old evil French mastermind working for Goldman...."

The current article gives a good if not well presented description of the ability of central banks to create money out of thin air and then trade it with other banks who are doing something similar.

None of this debt is backed with anything.  A salutatory tale.

Solution?  Stay tuned.

The Unspoken, Festering Secret At The Heart Of Shadow Banking: "Self-Securitization" ... With Central Banks [Zero-hedge]

By now everyone has heard of securitization: the process whereby banks take risky assets on their books, package, tranche them, and then re-sell them to yield chasing fiduciaries of widows and orphans. The conversion process can be nebulous, usually involving a 20 year-old evil French mastermind working for Goldman, and a billionaire hedge fund manager, who select the worthless securities put into the weakest tranche, just so the abovementioned two parties can short it while misrepresenting their conflicts of interest, and make a boatload of money when the whole securitized structure implodes. The process usually takes place "off balance sheet" via Special Purpose Vehicles so it is completely unregulated, and as such allows massive leverage.

According to many, the hidden leverage embedded in the securitization pipeline is what catalyzed the 2008 near-death experience of the financial markets.

All of this is well-known to most. 

What however is certainly not known, because until a few days ago the concept did not technicall exist, is what emerged deep from the bowels of the FSB's 2013 "Global Shadow Banking report", and what is barely even defined anywhere in popular literature, which thus we have defined as the "unspoken, festering secret at the heart of shadow banking." 

Presenting self-securitization.

What is "self-securitization"? Go ahead and Google it: there doesn't exist any technical definition of this heretofore unheard of phrase.

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