Pyramids Crumbling: observations by Bill Gross on the modern banking system –

Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.

… The withdrawal of deposits from our new age shadow banking system has frightening potential consequences because a thinly capitalized banking system is always at risk relative to its more conservative counterpart. Visualize, as does Chart 1, in crude yet understandable form, today’s shadow system versus that of two decades ago.

Banking: Into the Shadows

- Bill Gross, Investment Outlook January 2008 @ PIMCO Bonds: Link.

Observations by Jon Taplin, from his blog:

I don’t mean to be chicken little about the coming recession, but Bill Gross, the largest bond buyer in the US (PIMCO) has just published his January Investment Commentary. He writes about “The Bank Of Shadows” the unregulated banking system born of the Reagan era where reserve requirements are quite lax. Its a truly frightening piece.

… This is simply unsustainable. As a country we are going to have to live within our means. Mrs. Clinton was out today proposing the government loan a great deal of money to homeowners to stave off the inevitable foreclosure. This is not a solution, this is a political prank. It was the financial deregulation signed by her husband that allowed Investment Banks and Money Center Banks to merge, from whence the explosion in financial derivatives sprang.

- Jon Taplin, January 11, 2008: Link.

Comment by Joseph Urla @ Jon Taplin’s Blog:

Thank God I found this website. I have been screaming about this stuff. The otc market is totally out of control, with total notional amounts of outstanding trades at roughly $600 trillion by now, and criminally under the radar. Many of the participants don’t even have to be registered financial entities. This is a failure of fiduciary responsibility of the highest order.

- Joseph Urla @ Jon Taplin’s Blog: Link.

Via Boing Boing’s Cory Doctorow:

For the past couple weeks, one of my favorite blog-reads has been Jonathan Taplin’s blog. I got to know Jon when I lived in LA last year when he was co-faculty with me at the USC Annenberg Centre: he’s a smart polymath with a background as a music and film producer (Bob Dylan, Mean Streets, others), Democratic party shaker, financier, high-tech startup entrepreneur, and good thinker on diverse issues related to media, politics and technology.

Taplin’s blog is as eclectic as he is, a straight-up analysis blog that rips into the headlines, illuminating everything from economic news to the writers’ strike to heavy weather to democratic politics. I keep finding myself returning to Taplin’s posts as I read the news and talk with friends.

- Cory Doctorow @ Boing Boing: Link.