Paul Krugman - Shadow Banks

Have you read the reviews on Krugman's new book yet? http://www.amazon.com/gp/product/B004J8HXGS/ref=as_li_ss_tl?ie=UTF8&tag=t...

At some level, we owe an apology to the dot com bubble. But at least with the dot com bubble, there was something genuinely new to get excited about. But this bubble was in housing, which has been around for 5 thousand year. Everyone always comes up with rationalizations that the old rules didn't apply. People warned about the bubble, but why was it so hard on the financial system?

In the bad old days, banks runs are what turned the Great Depression "Great". And we fixed that problem. In economic terms, a bank is anyone who borrows short and lends long. If anyone tries to access their money at one time, they couldn't do it. A bank can be a hedge fund, it could be all kinds of things. A lot of these didn't exist 30 years ago. These days we have the shadow banking system. There are $10 trillion dollars in these shadow banks, and they are completely unregulated. They are like banks in the 1930s, they are like banks in the Wild West.

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[pirucreek]

Shadow banks are not really a problem, if they go bust the government does not have to bail them out or insure depositors.