Sharon Kennedy: The unpredictability of shadows

Shadows are unpredictable things. One minute they’re long and thin, the next they’re short and wide. They disappear without a trace and when the time is right, they reappear again. They cast images that lend a momentary beauty to our surroundings or they scare the daylights out of us. We can’t physically embrace them because they have no tangible reality. In a way, they mimic something called “shadow banking.” They have the appearance of being real, but they’re not.

Because I was unfamiliar with the term and found it intriguing, I watched documentaries that attempted to explain the concept of shadow banking. It’s such a complicated process, I wanted to give up, but I kept trying to make sense of it. I didn’t have much luck, but I did find economist, Paul McCulley, who coined the term in 2007 and defined it as a “levered-up financial intermediary.”

Unless you’re a student of economics, those few words probably meant no more to you than they did to me. Most folks have no reason to question the inner workings of financial institutions. Banks are places where paychecks are deposited and money is withdrawn. But unlike shadows that are created naturally and bring no harm to anyone, shadow banks are created to assist the morbidly rich in gaining greater wealth often by breaking the backs of the poor.

In a later McCulley article, he called shadow banks “non-banks” that functioned as unregulated entities accountable to no one. He explained no “real” investments were ever made by such banks. They were phony in everyway except in filling the wallets of the gangs responsible for the 2008 housing crash. Corporate banks had become “investors” with money not their own and knew they wouldn’t be held responsible if there was a crash.

When the housing market collapsed, it was the homeowners who lost, not the bankers or Wall Street. During Reagan’s administration, federal regulations were relaxed or completely done away with which meant the safe was open and nobody was minding the store. Anyone could apply for and get a mortgage regardless of their ability to make monthly payments. Nobody cared because the buck was passed from the bank to an investor who dumped the lot in a complicated derivative scheme. It was us — the taxpayers — who bailed out the predators who walked away with bulging bonuses. Billions of dollars were forked over to Wall Street to keep the stock market afloat and avoid another 1929 crash. According to those in the know, it was like putting a bandage on a serious wound. All it did was prolong the inevitable.

In the old days, banks were owned by people who were careful with depositors’ money, but banking has undergone major changes since Jimmy Stewart’s “It’s a Wonderful Life.” If there’s a run on banks, regulations will protect depositors up to a certain amount. Unlike Stewart, bankers won’t have to reach into their pockets during a crisis, so they can play chicken with money that should be in their vaults instead of betting on high-risk, high-yield schemes for their stockholders.

We don’t have to be experts to know we’re living on borrowed financial time. Before there’s another stock market meltdown and your average John Q. Public is jumping out of high-rise buildings, do your own research and Google “shadow banking.” What you’ll learn will likely cause your hair to stand on end. The shadows created by such “banks” will have you grabbing your family and running for cover.

— To contact Sharon Kennedy, send her an email at authorsharonkennedy.com. Kennedy's new book, "View from the SideRoad: A Collection of Upper Peninsula Stories," is available from her or Amazon.

This article originally appeared on The Sault News: Sharon Kennedy: The unpredictability of shadows