Sense on Cents

The question most asked in economic circles is, “How and when will our economy return to normal?” My response is always, “What is normal?”

I find it most impactful to explain to people looking to gain a greater understanding of our economy and our markets that the normal economy of the late ’90s through 2007 was driven by the shadow banking system. This shadow banking system provided upwards of 40-45% of the total credit employed by our economy.

The shadow banking system incorporated the credit origination, securitization, and distribution businesses of Wall Street investment banks as opposed to the traditional lines of credit provided by commercial banking activities.

The crisis on Wall Street 2008 brought this shadow banking system to a virtual standstill. While it has begun to resuscitate itself, it remains a mere shadow (no pun intended) of its former self. What is the result? (more…)