The banksters have convinced regulators that slicing and dicing and bundling and hedging bits of paper and spreadsheet entries where they get a percentage is "financial innovation" and helps the economy.

All of the evidence of the actions of the financial sector over the past 20 years or so indicates that is not true.

Paul Volcker from December 2009 - http://blogs.wsj.com...ce-execs-experts/

Former Federal Reserve Chief Paul Volcker isn’t afraid to speak his mind. At The Wall Street Journal’s Future of Finance Initiative he tossed a few broadsides at a group of financial executives and policy makers.

The group had gathered to come up with suggested reforms that would help prevent a future financial calamity. Mr. Volcker’s verdict: “Your response I can only say, is inadequate. You have not come anywhere close.”

Mr. Volcker, who also chairs President Obama’s Economic Recovery Advisory Board, had a few other choice comments. Among them:

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.”

Mr. Volcker’s favorite financial innovation of the past 25 years? The ATM. “It really helps people, it’s useful.”

In addition, he railed against financial system compensation plans and said it had grown too large.

His idea of reform? A return of something like Glass-Steagall. Commercial banks should be tightly regulated as well as protected. Trading, speculation and financial innovation should live outside those companies so that if they fail, they fail.


The world will be a lot better off when those things become law (again). It's going to be a while though. :-(

Shadow banking of course has spread throughout the world. In addition to China and India, Malaysia is having issues with it too - http://www.thestar.c...nking-crisis.aspx

In China today, a major banking crisis is unfolding and shadow banks’ overlending is said to be part of the cause. India has also taken steps to monitor its shadow banking activities after a sharp growth in such businesses over the recent years.

The size of the global shadow banking system, on a conservative basis, has grown to over US$67 trillion from close to US$26 trillion about ten years ago and accounts for nearly half the size of the worldwide financial system, media reports indicate. But economists say that while these activities provide a valuable alternative to bank funding, it can pose large-scale risks to the economy from past experiences.

In Malaysia, it isn’t clear just how large the shadow banking system is as they are not captured in any formal banking statistics. But some estimates put it at easily several hundred billions the amount of money loaned out. Among the more prominent shadow banks are lenders such as the Government-owned Bank Rakyat Malaysia Bhd (Bank Rakyat) and public-listed Malaysia Building Society Bhd (MBSB).

Here’s a telling fact: both these institutions have been reporting phenomenal growth at a time when mainstream banks have been hit by the central bank’s policies on responsible lending.


I fear that too many people are too sanguine about the world banking system. The problems haven't been fixed and could blow up again at any time. :-(

Cheers,
Scott.