Rise of Shadow Banking & Risks of a Financial Crisis | Lev Menand

Hidden Forces

Demetri Kofinas

Government, Business

4.8 • 1.6K Ratings

🗓️ 14 July 2022

⏱️ 62 minutes

🔗️ Recording | iTunes | RSS

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Summary

In Episode 258 of Hidden Forces, Demetri Kofinas speaks with Lev Menand, author of “The Fed Unbound: Central Banking in a Time of Crisis.” Menand is an associate professor of law at Columbia Law School who has worked as an economist at the Federal Reserve Bank of New York and as a senior advisor to both the Deputy Secretary of the Treasury and the Assistant Secretary for Financial Institutions.

He joins Demetri for an important and timely conversation about the US Dollar and the evolution of the international financial system into a kind of Frankenstein’s monster whose appendages and doppelgängers reach into the deepest recesses of the global economy.

Dollar balances and dollar-based lending by institutions not regulated by the Federal Reserve—what we broadly refer to as the shadow banking system—have grown so large over the years that no one, not even the Fed, can actually quantify them.

For most of us, awareness of just how dangerously complex the modern banking system has become was made clear fourteen years ago with the onset of what we now call “The Global Financial Crisis,” a supposedly once-in-a-lifetime event that almost repeated itself during the early days of the Covid-19 pandemic when the Fed came to the rescue of markets to stop yet another financial panic that threatened to bring down the global financial system.

Panics like these ultimately stem from a fear or inability on the part of financial counterparties to settle claims and honor liabilities. With the Fed now raising interest rates more aggressively than it has in almost thirty years the question that many investors, economists, and policymakers around the world should be asking themselves is “what is the likelihood that the events we experienced in 2008 and most recently in 2020 repeat themselves today?”

Our objective in bringing you this conversation is to provide you with a foundational framework for understanding the forces responsible for driving crises of liquidity in the international dollar system during a time when those forces are growing stronger and stronger. In the process you are going to learn about the plumbing of the shadow banking system, the evolution of the eurodollar market, repos, money market funds, and so much more. The majority of that conversation takes place in the second hour of today’s episode which is available to premium subscribers only.

You can access the full episode, transcript, and intelligence report to this week’s conversation by going directly to the episode page at HiddenForces.io and clicking on "premium extras." All subscribers gain access to our premium feed, which can be easily added to your favorite podcast application.

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Episode Recorded on 07/07/2022

Transcript

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0:00.0	What's up everybody? My name is Dmitri Kaffinas and you're listening to Hidden Forces,
0:06.0	a podcast that inspires investors, entrepreneurs and everyday citizens to challenge consensus narratives
0:14.0	and to learn how to think critically about the systems of power shaping our world.
0:18.0	My guest in this week's episode is Lev Manand, an associate professor of law at Columbia Law School
0:24.0	who has worked as an economist at the Federal Reserve Bank of New York
0:28.0	and as a senior advisor to both the Deputy Secretary of the Treasury and the Assistant Secretary for Financial Institutions.
0:36.0	He joins me today to talk about the extremely important and timely subject of money,
0:42.0	specifically US dollars, and the evolution of what we once would have called banking,
0:47.0	but which has transformed over the years into a kind of Frankenstein's monster
0:52.0	whose appendages and doppelgangers reach into the deepest recesses of the global economy.
0:58.0	Dollar balances and dollar-based lending by institutions not regulated by the Federal Reserve,
1:04.0	but we broadly refer to as the shadow banking system.
1:08.0	Have grown so large over the years that no one, not even the Fed, can actually quantify them.
1:14.0	For most of us, awareness of just how dangerously complex the modern banking system has become
1:20.0	was made clear 14 years ago with the onset of what we now call the global financial crisis,
1:26.0	a supposedly once-in-a-lifetime event that almost repeated itself during the early days of the COVID-19 pandemic.
1:33.0	When the Fed once again came to the rescue of markets by stepping into the breach,
1:39.0	creating an additional $3 trillion, three times what it conjured in the fall of 2008,
1:46.0	to stop yet another financial panic that once again threatened to bring down the global financial system.
1:53.0	Panics like these ultimately stem from a fear or inability on the part of financial counterparties
1:59.0	to settle claims and honor liabilities.
2:02.0	And with the Fed now raising interest rates more aggressively than it has in almost 30 years,
	...

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