Banking, rehypothecation and collateral shortages

First I’ll caution the reader that this is rather advanced stuff (I read through it half a dozen times before it clicked), but this is an absolutely excellent piece exploring the ongoing global macroeconomic and macro-financial banking problems, the issues of rehypothecation and the associated shadow banking system, and the lack of high quality collateral:

The main point is that while quantitative easing does expand the money supply, the trade off of safe assets for cash is at the expense of quality collateral; in other words as the money supply expands, the supply of quality collateral contracts. The details are more nebulous, but important as we think about what the future will look like.

The Financial Times and John Aziz have gotten in on the action, and their presentations are much more novice-friendly than the ZH article above:

Tthe International Monetary Fund (IMF working paper hosted by Barry Ritholtz here) and the Bank of International Settlements have openly discussed the collateral and rehypothecation problems summarized by ZH above. However ZH does a great job in compiling that stuff for us:

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This entry was posted in Advanced, Banksters, Capital, Capitalism, Finance, Macroeconomy, Public Finance, Rent seeking. Bookmark the permalink.

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