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
And further deregulation incoming.
Sorry dude, but they aren’t back. They aren’t back because they never left.
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.
GME stock owners be like “Yeah, we have been talking about that shit for years now!”
Explain in some detail as to how this is connected.
Just saying that these guys have been going crazy trying to find all the cracks in the system and have been talking about all the systemic risks for years at this point. It’s not related to GME in particular, it’s just that this crowd of retail investors are extremely interested in anything that could point to a potential market collapse and they are ahead of financial news sites for many of these things.
tl;dr is that when the GameStop squeeze didn’t occur, loads of those traders got really into market mechanics, fiscal policy, and activism.
I still sign their petitions, but I’ve had the passion for it beaten out of me over the years. Markets are, I believe, unfair by design, and this economic system is functioning exactly as intended.
Yes
Who is GME?
GameStop. The whole r/wallstreetbets thing.
I’m not familiar
MASSIVE oversimplification incoming
In 2020, evidence was brought to light that GME price was being artificially suppressed. A lot of people bought the stock at once, which would mean that those driving down the price would lose money, so the buy button for GME was turned off (at least on some brokers).
Nothing was done about the artificial suppression. It continues to this day. Forces other than supply and demand play a huge part in the price of a stock.
Brokers all colluded to turn off the buy button? Is that legal?
I believe it was just one of them, a free trading platform (Robin Hood?) that made its money by selling its trade stream before it could be executed (which means they can make free money by exploiting inefficient trades, at the expense of clients of the platform). It was pressured by the company that buys that trade data to halt buys.
Since a large portion of the people buying shares were on that platform, the whole thing lost momentum (when it was on the way to paying off). Though, if it had been allowed to continue, it might have broken the entire economy because the short squeeze didn’t have a maximum on the amount those betting against GME could lose and such scenarios end up in a vicious cycle where price just keeps going up because there’s an obligation to buy shares (to cover in the case of calls or back in the case of short selling).
Previous successful short squeezes (eg: Porsche) only ended when the entity doing the squeeze negotiated a way out for the shorters. But in GME’s case, it was a crowd sourced squeeze where everyone wanted their lambos as a result and weren’t going to negotiate but each choose at what price they were willing to be bought out.
What it should have done was cause some investigations about how funds operate and lead to some big changes in how funds and trading platforms handle short selling (in this case, they had oversold the number of outstanding shares, meaning there weren’t enough shares to ever cover if the short was squeezed, and calls that market makers just kept selling multiplied that).
Instead there were a few senate hearings and then it fizzled out. I don’t recall any actual changes resulting from it. Many tried to blame the public doing the squeeze because they weren’t rich enough to exploit the system or something.
Since none of them saw consequences, evidently it is.
That isnt the only illegal thing they did - far from it. Look up naked short selling.
Whoever’s writing this timeline is just like, “C’mon, guillotine the billionaires already!”
I’m sure Tim Pool, former Occupy Wall Street spokesperson, is very upset about this.
I wonder what excuse the people who voted for Trump because of “the economy” will come up with next time.
This article depicts my worries very well.
