Hedge foundations are new ‘shadow banks and some are concerned that they pose a systematic threat to financial stability

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• “Shadow Banking” is now $ 250 trillionor 49% of the world’s financial assets according to the Financial Stability Council. Hedge foundations manage assets that have 15 times more than they do in 2008. The latest spike in bonds, caused by hedge funds caused by hedging funds, it’s mainly some people who can create a 2008 style threat to an unregulated business financial system.

Economist Paul McCulley has made the term “Shadow banking“In 2007, a year ago from Lehman’s brothers dispersed. Soon, Easy Credit helped the subprime mortgage melting brought the global financial system to his knees. About twenty years later a bond market Triggular by President Donald Trump’s chaotic tariff He sparked from the fear of a similar liquidity crisis.

Although the large recession is very important for the health of a larger financial system, the more important for the health of a larger financial system, how many of those dealing with lending without the regulatory verification of banks. However, banks and mortgage, which are in the center of focus, passed the mortgage deposits from the hedge funds and private capital companies. For example, one Unusual spike US treasury productivity rises as the price of bonds, as the price careful The highly used hedging fund businesses help to protect money markets, but can pose a wider threat to the economy when they separate.

Banks, of course, convert cash deposits to long-term, illiquid assets such as mortgage loans and loans to consumers and enterprises. Shadow banking agencies do the same, but by collecting funds from investors instead of using consumer savings and borrow.

Although the “Shadow Banking” descriptor seems bad, it is not bad about it, Amit Seru said that Amin Seru was a conservative aspirant and a large colleague, a conservative thinking tank. In fact, risky lending outside traditional banking can improve the sustainability of the financial system.

“It’s a point where it is often lost,” he said Fortune.

Hedge funds It can take more risk than banks, because they often often often share their capital their capital often “locked” and insulate the short-term losses. As Seru notes, these investors often facilitate the discovery of prices in markets for bonds and other securities.

An example is not the so-called “main tradeAfter winning the treasures and earning the arbitration, these companies, these companies, these companies, mutual funds, pension funds, insurance funds, insurance companies and other active managers are a fundamental imagination in the credit markets required by the treasury futures.

However, hedging funds can cause $ 800 billion in trade for short-term debt, sometimes 50-100 times more than 50-100 times.

“It creates ripple effects,” Seru said. “You always need to worry about ripple effects.”

Filling for Lehman Brothers

It does not mean that the hedge funds are not to be financed by consumer deposits and fail to take steps when the government goes to the south. A decades a decade ago Bankbayouts In 2008, the long-term capital management of the Hedge Foundation was also considered “very large to fail.”

The LTCM’s work is justified to make a high gift to arbitration opportunities in bond markets. Finally, the world was about 5% of the world’s steady income, but the company suffered steady losses when Russia default of its debt In 1998, the US government closed a mass amount from Wall Street banks, which allows the US government, a $ 3.6 billion rescue package to prevent a 10.6-billion rescue package.

“Now, the reports we have in the relationship, I think it’s bigger than that,” he said.

Ten years later, Lehman’s brothers and bear stearns threatened to bring most of the American banking system, as well as the federally supported enterprises Fannie mae and Freddie Macwith them. What investment bank did not receive consuming deposits, but in any case markets for short-term debt. Suddenly, as a large credit crisis, banks and corporations were hungry from capital.

Along with the sharply growing regulation and control over the largest banks in the country, the subsequent DODD-Frank reform legislation applied to lelhank lenders.

Again, the shadow sector exploded since the financial crisis. Now the world’s financial assets are $ 250 trillion or 49%, according to In 2023, the traditional banking board of financial stability, which is more than twice the growth rate. Hedge Foundations, especially, manage 15 times more assets than they do in 2008, per Bloomberg.

This Wolcker RuleDodd-Frank serves part of the investment banks prohibited from property trading, and therefore, for this reason for market manufacturers. Hedging funds took a step to fill the gap. To trust their short-term debt and relative control, it creates similar concerns for 2008, now it is very large and they can be “too big to fail.”

“If they explode, it will affect other parts of banks, including other parts of banks, and then pour into the real economy,” said Goldstein.

In fact, hedging funds, private capital and credit firms, subsequent companies are the fastest growing part of the US banking system, Michael Green, portfolio manager and head strategy, simplified the ATF provider. Weekly Loans in the Shadow Bank sector exceeded $ 1.2 trillion information from federal reserve. Green, which is texted by George Soros and manages the personal capital of Peter Thiel, clearly sees the clear risk of a disaster in 2008.

“It is dramatically more likely,” he said, “Even like not tying.”

For example, when it comes to basic trade, the periods of market stress can leave their sensitivity to other pressures to eliminate margin calls and positions of hedges. When Hedgehogs cast the amount of mass amounts of masses, the market can fight to win them. Concerns related to the risks of unemployment can then be poured Repo marketsIt is the cornerstone of the short-term loan where the US debt is a dominant form.

This scenario played in the first days of the Covid-19 pandemology, the federal reserve get $ 1.6 trillion to get $ 1.6 trillion in a few weeks. During the last sale, economists and other market watchmen, the Central Bank looked carefully for the signs that need to intervene. In the last two years, the 10 largest Hedge Fund in America increased its repo debts to $ 1.43 trillion, according to To the Office of Financial Research.

Regulates hedgeon funds

Some scientists say that this regulation is not ideal and there is proposed Fed, set up a credit facility for hedging funds to address this type of crisis in the treasury market. However, if this is Republicans of Congress, it is a less real scenario convince Treasury Secretary Scott Bessent to reduce the ability to determine the main investment firms such as the main investment companies of the government’s basic investment firms.

Have Continuous trading Seru said that this type of shadow-banking agencies regulate. You look more like traditional banks and the discovery of prices and gains prevent users’ efficient movement of funds. However, even if firms risk their capital, the danger of infection.

“You can’t have both ways,” Seru said.

In addition, it will not help hard to harden screws in hedging funds, but to do the same thing and essence of another institution. After all, here are what happens when hedging funds take advantage of increased investigations in investment banks.

“I do not see how the security of the financial system is done,” Goldstein said.

When Seru is worried about heavy fifty control, regulators need to be transparent in both the state and private markets, he said. For example, it is important to know if Hedgehog takes a large number of risk, as Big Wall Street banks are associated with the loans withdrawn by the government.

If he was exposed to a wider system, he said that measures such as capital requirements for shadow-banking agencies should be applied. But seru warns a beer crisis collapse one Silicone Valley Bank In 2023.

“What the regulators can hold and what markets can get,” Seru, “and understands that there are problems in both sectors.

Especially in complex risks in the shadows.

This story was first displayed Fortune.com

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