Joe El Rady, Managing Member, The El Rady Group
Are you aware that Wall Street banks are generating billions of dollars per year through opaque, complicated, and largely unregulated activities that few people, even within the financial community, understand? In the wake of the 2007-2009 financial crisis, regulators tightened their oversight on traditional banking institutions. As a result, risky lending migrated to a darker, hidden corner of the financial system known as the shadow banking industry. This sector, which includes exchange-traded funds, structured investment vehicles, and hedge funds, now owns more than US$75 trillion in assets. While shadow banks engage in many activities, they reap their largest profits from the enormous financial roulette table known as derivatives. Originally designed to hedge risk, the derivatives market today has mushroomed into a mountain of speculation never before seen in world economic history. The estimated notional value of the worldwide derivatives market exceeds US$600 trillion, and may top US$1.5 quadrillion, 40 times the aggregate value of all of the world’s stock markets, and more than 20 times the value of aggregate global GDP. Risky lending and Derivatives were at the center of the financial crisis of 2008. They will almost certainly be at the center of the next financial crisis as well, and no government in the world will have enough money to fix it this time.
- Understanding the shadow banking sector: listing its activities, identifying its participants, and specifying its role in the wider credit market
- Comparing and contrasting the helpful and dangerous, risk mitigating and risk creating, activities of shadow banks and uses of derivatives
- Contrasting the differences in liquidity and risk mitigation between shadow banks and traditional banks
- Understanding the differences in credit creation and leverage multiplication between traditional and shadow banks
- Identifying the differences in regulation and oversight between shadow banks and traditional banks
- Learning about different derivative instruments, how they function, why they are used, and how they are structured