How Shadow Banking Ended the Age of Easy Money (2024)

Years ago during one sleepless coffee-fueled night, I stumbled across a financial term that made me uncomfortable: The Shadow Banking System.

I had imagined some crazy Alex Jones conspiracy theory or going down a deep rabbit hole, but what I stumbled upon was much worse.

Shadow banking is the collective term for organizations that offer bank-like services, but aren’t regulated as banks.

BlackRock is a shadow bank, a special type of corporation that can skirt typical banking regulations by being legally registered as an asset management company.

BlackRock is the world’s largest asset manager, with $9.42 TRILLION in assets under management as of June 30, 2023. It could be described as the largest and most powerful bank in the world, if it were legally a bank.

Shadow banking includes also non-bank mortgage lenders like Quicken Loans, pension funds, hedge funds, ETFs, fintech companies like PayPal, insurance companies and anything that isn’t a part of the traditional banking system.

Two-thirds of the U.S.’s wealth is tied up in these unregulated institutions.

These are the puppet masters behind the U.S. economy.

“There is a very large shadow banking system … that has been made larger by increased regulations in the banking system” — CNBC

Economist Paul McCulley first coined the term ‘shadow banking’ in a prophetic 2007 speech where he elucidated that shadow banking is a symptom of too many regulations.

Picture this: you’re the boss of a casino. But then, in comes the government telling you that you can’t offer blackjack anymore.

You know blackjack brings in the big bucks. So guess what? You’re not about to let regulation stop you from making money off it.

You “officially” create a space within your casino called the “Gaming Hall.” The only difference is that you let people place side bets on the…