Shadow Banking

The Shadow banking system (also at the time known as Too Big to Fail, later Dodd – Frank Act called SIFI’s Systemically Important Financial Institutions) in the United States was according to one blogger “the definition of utter insanity.”  And responsible for concealing leverage which led to non-market-based, fake, unsustainable GDP growth, housing price and overbuilding bubbles, unbridled speculation and devastating mortgage foreclosure and local property tax base wreckage in its path.

Unless you are aware of its impact (concealed leverage) on every type of asset and account, you and your financial, tax and legal advisers are missing quite possibly the most essential information for FINRA arbitration and securities class action and individual claims.  It is the indispensable explanation for real estate, stock market, bond, commodity and currency market performance from 2004 to 2018.

The size of the Shadow Banking System ($16.3T as of year end 2007 and larger than 2007 US GDP) and entities therein and huge ABCP - SIV mauldin_21_10_07aregulatory failures in oversight caused major distortions in Money Market Fund sweep accounts, Bank Insured Deposit Accounts, Auction Rate Securities, ABCP Asset backed commercial paper, especially SIV-issued ABCP, RMBS, CMBS, CDO’s, CDS, Stocks, Bonds, Residential Real Estate and Investment rental properties.






The sun lights the exterior of the New York Stock Exchange, as people walk past on the shadowed street

The Federal Reserve’s QE3 (Quantitative Easing, Stage 3 also known inside the Fed as the LSAP, Large Scale Asset Purchase Program) $85 Billion of Mortgage securities every month, that’s a trillion dollars of RMBS a year.   Since the Fed has been supporting the Treasury and MBS market since 2009, today as of July 2013 the Fed owns well over $3 Trillion on its balance sheet.  As of March 2018, the Fed still owns over $4 Trillion US Treasury and MBS,  Why, now, if everything seems fine, would this never been done before action be necessary?  Or is there another shoe to drop? Or why is the Fed’s inter-bank interest rate still at zero?

Update: the Fed has raised rates six times since late 2016.


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