 start then. Welcome everyone. Let me just briefly start out by saying that I sincerely hope that you and your loved ones are all safe and well. My name is Marie and I'm going to be the moderator today. I'm currently an MSc student at SOAS doing a degree in International Finance and Development and I'm an active member of the Open Economics Forum and I'm one of the co-organizers behind this webinar series. These are incredibly unpredictable times which is why we created this webinar series to begin with to kind of make sense of at least what is happening within the economy. It's organized by the SOAS Economics Department and of the Open Economics Forum together. The Open Economics Forum is a student society which aims to promote heterodoxy and pluralism and we are a part of the Rethinking Economics Network. I'm just going to do a brief round of thank yous to first of all to Anna Fricker from SOAS Marketing, then to Yanis Afirmis and Sarah Sivano, two lecturers at SOAS who just caught this webinar idea and ran with it together with us and then to my fellow students, Alice Olli, Daniela, Anna and Rasa who are all helping out behind the scenes at the moment and then some warm thoughts of solidarity to the people in my cohort who would have loved to take part in organizing these events but for various reasons produced by the current crisis are prevented from doing so. And then a little housekeeping, I'll stop talking really soon, I swear, and then Daniela will take over and speak for approximately 30 minutes probably and then we're going to move into a Q&A session. For that Q&A session we're going to need your brilliant and not brilliant just questions in general and you can post those in the chat box on the right hand side of your screen, there's only one chat box so this should be fairly easy. I've already posted some things in that chat box as you might see. There's some social media info which is on where you can follow the SOAS Economics in the Urban Ignanx Forum and also just get more info on this webinar series as it develops and also there's a link to where you can find the previous recordings and this session is also recorded. If you're treating during this webinar we ask you to use the hashtag economics of covid. Right, this is already the seventh webinar in our series and today we're taking on shadow banking in corona times. The prosyclicality and instability produced by shadow banking is nothing new but what happens when it's paired with a global pandemic and economic crisis. To give us her outlook and analysis of the current developments we have with us leading expert in shadow banking Professor Daniela Gabor. Daniela is a professor of economics and macrofinance at UWE Bristol. Her research interests includes repo markets and their implication for monetary theory, central banking, sovereign bond markets and regulatory activity. She's currently working on two research projects. One is on managing shadow money funded by INED and the other is on the capital markets union funded by FEPS. She blocks at criticalfinance.org and at helicopter money and I would personally warmly recommend you to follow her on Twitter at Daniela Gabor. Thank you so so much for joining us today Daniela. The floor is all yours. Okay, first thank you for the invitation to the SOAS students and to my colleagues at SOAS. I don't know whether I'm a shadow banking expert but I am definitely an academic who has spent a lot of time looking into the plumbing of global finance and I want to, I mean, I was advised not to have slides but I will have slides because I don't take advice apparently seriously and I'm not quite sure that seeing my face would be more exciting than looking at the slides. So I want to make three points today to take away. I want to first discuss shadow banking in a historical perspective and to kind of move you away from the idea that shadow banking is some sort of obscure financial activity that happens away from the public eye and instead think of think about shadow banking through its trajectory in historical time from what I would call the legitimate child of central bank independence from the 1970s 1980s demise of the Keynesian consensus of how we organize the relationship between monetary and fiscal policy to then by the end a global political project to create to export the specific model of American financial capitalism all over the world and to Americanize local financial systems and I call this global political project and I show you why I think it's a global political project. I call this the Wall Street consensus. The second point that I want to make is that what we have seen with a coronavirus crisis with a global pandemic is a sort of generalized bailing out of shadow banking that to me demonstrates not only the political power of shadow financiers or elite financiers but it also brings into play and I think we should study very carefully a new role for the state and I call this a new image in this new type of state activity that comes with the growing importance of shadow banking. I call it the the risking state and if you want to have an analogy with David Harvey's accumulation by this possession I would argue that we're moving or we have moved over the last 30 years into a strategy of accumulation by the risking and I'll show you what this accumulation by the risking means. Finally I want to make the third point and I think this is a most important takeaway from what is happening to shadow banking at the moment is that the post pandemic future will see a reinforcing of the status quo where shadow financiers are at the core of global policy making and what we I expect to happen for a variety of reasons is that the global financial elite will increasingly co-opt the green agenda and the sustainable development goals agenda for its own sort of profit making and accumulation purposes. I want to go through a couple of quick definitions of what is shadow banking just to get them out of the way. I like very Merlin's definition so I don't know if you've seen the Zoltan Poshars famous map from 2010 that showed that it's very very complicated financial global financial system with lots of different types of financial institutions doing shadow banking. I think a much neater analytically definition is very Merlin's money market funding of capital market lending and why I like this definition why I think it's very neat it's because it tells us that shadow banking is just another form of financial structure that is now described as market-based finance and in this market-based finance that I would oppose to bank-based finance although I wouldn't take banks out of it market-based finance means credit creation via securities markets or bond markets or capital markets that is financed through new types of systemic liabilities or liquidity structures including repo markets derivative markets and ETFs in the sort of latest incarnation and when I think about shadow banking or its equivalence to market-based finance I think of an ecosystem of institutional investors asset manager bond and hedge funds and of market-based banks that are operating together in a global dollar dollar-based financial system and this is why when when we think about shadow banking we should also think about about setting it in the context of financial globalization okay just to give you a couple of big graphs of what this financial globalization looks like and to make a point that when you read or when I read the newspapers all sorts of articles that are proclaiming the end of globalization as we know it I think it's correct to say that real globalization that is international trade and goods and services has come under attack but financial globalization is alive and well and we already we can see how important financial globalization is or has been in before before the pandemic times and here you have the ratio of financial openness to trade openness and you will see that cross-border capital flows are much more important than international trade flows and this is a figure from a report that I've written for the Heirich Ball Foundation for the US and I see Nancy Alexander is here I want to say hi to her it's a report that looks at frequently asked questions about financialization or about financial capitalism so we have seen this growing importance of global finance it is matched by what Andy had then called the age of asset management or the idea that we have increasingly large pools of wealth being managed by asset managers like BlackRock or Vanguard quite concentrated in in their management and the size of these pools increases has increased very rapidly over time and I'll give you an account of why this is important to think of but when I think about shadow banking I think about market-based banks and I think about asset managers in particular what shadow banking also does and I think it's important to bear this in mind is that it blurs the lines between what we tend to call a real money or patient investors and leveraged or speculative investors in a sense that we are seeing an overlapping of business models and here just to show you because I'm a follower of Hyman Minsk I wanted to show your balance sheet in the sense that both real money investors and speculative investors the categories that we tend to use when we talk about market finance have on their asset side or on their liability side a shadow banking or market-based finance activities in other words for example in figure six what we see is a what we would describe a typical shadow bank financing its securities portfolio by issuing different types of debt particularly repurchase agreements which are liabilities collateralized with these very securities that this hedge fund let's say is financing and it's issuing this hedge fund is issuing this type of repo liabilities to a real money investor right so we have repo lending here or money market financing or repo market financing of securities market lending also very important to bear in mind that although in the shadow banking literature we tend to separate real money investors from or pension funds from the more aggressive hedge funds we actually know that in practice a lot of hedge funds are managing the money of what we would call institutional investors or patient investors and that's a graph here that shows you that institutional investors like pension funds or sovereign wealth funds are very significant lenders or investors in hedge funds so how do we did we get here how do we come to live in a world where market-based finance is at the core or is the sort of beating heart of financial globalization and I want to spend a bit of time historicizing shadow banking as a political project right and I think one useful picture of this is this one that I found this morning on through Google I would argue that at its roots and at its beginnings in the current phase of financial globalization and just to make a note that we've had this before 1933 before the first global financial crisis we have here what we have at the root of the growth of shadow banking in the last 30 years are in a sense the political and economic ideas of Milton Friedman and Margaret Satcher if we want to think that Milton Friedman was an intellectual freedom fighter for Margaret Satcher he was was also an institutional fighter for shadow banking and what do I that I mean that in the first stage of shadow banking so if we want to take a historical trajectory of how shadow banking evolved shadow banking comes out of the attempts to create an institutional separation between central banks and ministries of finance that were somehow joined at the hip during Keynesian times in the sense that the central bank was and monetary policy was subordinated one way or another to the ministry of finance and its role was to keep financing costs low when this institutional separation occurs what we see is the rise of shadow banking through the what do I call liquidity imperative in other words and ministries of finance first in the US increasingly allowed repo markets to be organized by private market participants according to the rules that they preferred and this logic was that as long as you have ministries of finance that can issue debt or securities government bonds and allow private financial institutions to finance the debt securities through repo markets then the sovereign doesn't need to worry about liquidity and if the sovereign doesn't worry about liquidity eventually it doesn't need to worry so much about the volatility in financing costs and this repo US Treasury model which is at the beginning of shadow banking in the sense that it creates shadow financing markets was awarded to Europe in the 1990s in some sense through quite interesting political battles in Germany or the UK I don't have time to go into them but I'm happy to take questions but we are seeing the spread of shadow shadow markets in the 1990s as a consequence of many ministries of finance all over the Europe trying to solve the conundrum of what do you do if you don't have a sense if you have a central bank in the that is independent and that is no longer providing what Milton Friedman described as one of the most problematic aspects of macroeconomic management which is a monetary financing for populist governments so that is the first stage where we see the growth of shadow financing markets all over Europe and then in stage two shadow banking continues to be a political project in the sense that its growth is fed by a series of what I would call neoliberal assaults on the old traditional welfare state the more we have a week of the ability of the state to tax multinational corporations or to tax high net worth individuals the more we have a weakening of the welfare state's ability to to promise to take care of future uncertainties through public goods like health or education the more shadow banking we have in the sense that we middle class individuals in high-income countries are starting to save through pension funds and insurance companies and these will become what Zoltan Posher calls institutional cash pools which are those actors in in the shadow banking universe who want or who for whom the traditional banking system doesn't work anymore in the sense that it cannot produce money like instruments like bank deposits that are functional for them and therefore shadow banking comes in and produces these instruments while at the same time financing aggressive leverage from hedge funds and other high risk high return types of financial institutions this I would guess that this is a story of shadow banking from the middle 1990s up to the collapse of lemon brothers and what is interesting about the collapse of lemon brothers is that we have a sort of narrative break in the way that policy circles all over Europe or and in the US think about shadow banking for quite a while we had shadow banking as a source of diversification what we have now is a source of systemic crisis because many financial many regulators rated the crisis of lemon brothers as a run on systemic shadow liabilities particularly run on the repo market and what we have out of the collapse of lemon brothers is on the one hand an attempt to regulate shadow markets like securitization markets and repo markets through the financial stability board but these attempts become increasingly watered down and weakened by I would say I would argue the the lobbying power of of private finance as much as by the entanglements between monetary and fiscal policy that shadow banking creates it's a stage one sort of historical origins and then we have a stronger attempt to regulate shadow banking through a basis three regulations that are targeting the leverage and liquidity cycles that are produced by the shadow banking activities of commercial banks or market-based banks however this this this period of treating shadow banking as a systemic part of the finance financial universe that needs to be properly regulated doesn't last very long and by 2015 you have what I would describe as the contours of a global political project to push for market-based finance and to transform the financial stability board says oh we have to transform shadow banking into resilient market-based finance and we have to think about liquidity very carefully then we have the G20 project of infrastructure as an asset class and the local currency bond market project that both are arguing that we need to put in place the kind of americanized financial structures that are characteristic to shadow banking in order to make sure that developing and poor countries can finance their infrastructure projects and in order to reduce the dependency of developing and poor countries on on dollar debt and and that I will show you in a second is a very elusive idea that by shifting into local currency bond markets you reduce dependency on on dollar debt but it's it's a very powerful narrative it also comes into the global development space with the world bank who in 2015-16 introduces maximizing finance for development agenda which again is a project of creating an institutional framework under which development interventions can increasingly rely on shadow banking or shadow financial institutions in order to achieve the sustainable development goals and this project I would argue has been quite successful if I don't know if you this is too small to look at from a world bank and IMF 2020 report on local currency bond markets what we are seeing here is that although we talk a lot about the dollar debt of poor and emerging countries what matters in terms of relative distribution is a local currency debt and a local currency debt issued by emerging countries is quite significant as a share of GDP and as a share of total 86% in this table but what also matters on this right hand side is that the local currency bonds are increasingly held by non-resident investors in other these global institutional investors that we tend to think of as a part of the global shadow banking universe so in finishing with the first point the argument of the first point is to trace historically the the growth of shadow banking as a as a political project of financial globalization that involves trying to recognize local financial systems to make them look increasingly like the US financial architecture that allows global institutional investors in the shadow banking universe to take positions across a set of currencies and across a set of asset markets in order to generate profitability now what happened in the global with the pandemic I would argue that when we think about the responses of various high-income countries to and emerging countries to the global pandemic we are seeing the contours of a de-risking state that is a state that assumes institutionally the responsibility for reducing the exposure of shadow banking to the kind of prosecutorial forces that Marie was mentioning in the beginning in other words making financial bailing out financial capitalism and in a sort of asymmetric way in which I think can very well be described by heads you tail I lose in terms of the relationship between the state and shadow banking and what does the state the risk when it risks for financiers and I think there are two three very important analytical categories that we can think of in terms of state de-risking first there are raised hands Marie joined me to stop and talk about this or no I think if the people who have questions could just ask them in the chat box and we'll get to that afterwards okay yeah I'm sorry I'm sorry eager participant but I've been told to take this at the end so the first analytical category of de-risking is the state de-risks collateral in order to de-risk systemic liabilities right and in 2008 we have seen or that I think it's very legitimate to describe as a crisis of shadow banking we see the state de-risking in a sort of covert way safety through a new institutional form which is a market maker of last resort that basically puts a floor on the prices of certain collateral securities in order to make sure that the liabilities or the debt that is collateralized with those securities does not become does not explode into a cycle of financial instability and here of course the more the more remarkable role of market maker of last resort can be thought for government bonds but also for a range of market based sorry mortgage and asset backed securities with the pandemic what we are seeing what we have seen over the last three months is a normalization of this market maker of last resort for a broad range of assets across high income countries and developing countries and to me this is quite interesting in the sense that if you look at the US Federal Reserve City there that the Federal Reserve is now purchasing a very broad range of securities including using BlackRock which is I would guess the most important systemic shadow bank that we have at the moment using BlackRock in order to de-risk for example ETFs or exchange traded funds but what we're also seeing that is interesting for developing countries is that a central banks in say Colombia or South Africa or Chile are increasingly committed or accepting that they have to de-risk government bonds for institutional investors that are non-resident so we are seeing a normalization of this market maker of last resort which was very difficult during the first crisis of shadow banking in 2008 because it exposes the way in which the government debt is not only an instrument for fiscal policy but it's also a fundamental safe for the shadow banking universe but it's not a safe asset that is immune to shadow banking volatility and we if you want to read more about this I would just recommend reading Nathan Tankus's work on the Federal Reserve as a series of really interesting blogs and he knows a lot more about the market making of last resort in the US than I do but what we know and is interesting to study in terms of shadow banking is how our pre-pandemic ideas about who is safe from the prosyclicality and potential liquidity spirals that the banking generates we thought before 2020 that at least the US sovereign is safe in the sense that you don't get the destabilizing dynamics that require the central bank to intervene in collateral markets and stabilize their price we don't see these destabilizing dynamics occurring in government bond markets and that is now true for Germany for a very specific set of circumstances that have to do with the architecture of the eurozone and here you see that in a sense when the eurozone is doing bad there are financial pressures everybody runs into Germany so it has a sort of de facto exorbitant privilege that comes from the architect of the eurozone macro financial system that the US no longer has or the US no longer has on what we thought or unquestionable basis and here there is a graph that shows how hedge fund positions before COVID-19 led to disruptions in the US treasury market my mind are very closely related to how to the mechanics through which shadow banking generates liquidity and leverage cycles but the state doesn't only de-risk collateral for financiers who are making or making profit through market-based finance we are seeing and I think this is really interesting to study is that the state is increasingly oriented towards de-risking exchange rates for global financiers and when we talk about in general about exchange rates in relationship to central banks we tend to think about the global dollar financial cycle which is in a sense the brainchild of Helen Ray's work and that basically says that the global what financial globalization does is to integrate and to connect more and more local financial systems to the dynamics of the global dollar funding conditions that are ultimately sort of a result of the interactions between the US Federal Reserve interest rate decisions and the trading and market making positions of US-based banks and dealers so exchange rates become important in in this global financial cycle in the sense that they have an important influence on what happens not only with the dollar liabilities of non-US banks but they also matter through the growth of this international FX swap market for Borio et al the FX swap market is an important story of missing dollar debt that is equivalent in some ways to the story of other shadow markets like the Ripple market I have some disagreements there but I don't think we have time to go to go through them but what we see in terms of institutional reactions to the importance of the global dollar financial cycle and to the importance of to the growing importance of local financial systems being inserted directly or indirectly through the FX swap market in the global dollar financial cycle is that the central banks in emerging and poor countries are assuming exchange rate risk one way or another and there is some research from Brazil that shows that the central bank of Brazil assumes a role of hedger of last resort in a sense takes over or provides hedging to local banks with US dollar liabilities or to or the risk exchange rate for non-resident holders of local currency bonds and I will show you why this matter this is from a an article from by Martin Wolf picking up on some work done by Jung Sun Chi and others at the Bank for International Settlements that shows that in a sense although developing countries were promised that if they Americanize their local financial systems and move towards market based finance by issuing local currency bonds they will be they will be better protected from the volatility of the global dollar financial cycle that's not the case because the positions of institutional investors in these local bond markets very much don't exchange rate dynamics and when the exchange rate threatens to depreciate you will have a run for the for exit simply because gains will be will be the gains for institutional investors would otherwise be eradicated so we are seeing this shift towards a central banks the risk as a hedger of last resort but we're also seeing a newfound willingness from the US Federal Reserve to backstop the global shadow banking system through two types of a sort of lender of last resort facilities and there is here an interesting question of the hierarchy of access to the US Federal Reserve because we know that the US Federal Reserve is prepared to treat central banks as peers in the sense of lending US dollars to them in swap operations and then those US dollars are used by the central banks to sort of prop up the dollar balance sheets of their local banks and shadow banks but we're also but so that's that's sort of the first layer of here the hierarchy of access but we're also seeing a sort of second layer where the US Federal Reserve says okay I understand that your local financial system has dollar liquidity needs but I am not going to abide you with dollars through swaps what I'm going to do is I'm going to allow you to repo your holdings of US treasuries and get liquidity this way and we can have a longer conversation about what are what is the implication of this hierarchy of access to the US Federal Reserve in terms of the resilience of emerging countries to the global dollar financial cycle what I think matters taking a step back is to to take into account or to think in terms of the institutional changes that are occurring in the world of central banking in the sense of the risking exchange rates and that that I think will become more and more normalized as we go along. The third analytical category of the of the risky of the the risking state that I think is important to take into account and where I think we will be heading once the sort of more acute phase of the global pandemic is over is a the risking agenda for new asset classes and talking about green finance and sustainable finance in other words we are going to see I think a very clear dominance of the status quo that we had before the pandemic I think some of us were initially somewhat optimistic at the beginning of the pandemic to see some sort of a silver lining in in this unprecedented in many ways a global economic crisis because we thought that the status quo of financial globalization will be dismantled and then there will be opportunities for something that progressives would find nicer to come in place some form of our big state that can in a sense protect us from not only from pandemics but from the climate crisis and I think that we were a bit naive or at least I would argue that I was naive to assume that this would be the case instead what we are going to see is a strengthening and a reinforcing of the structural drivers of shadow banking and financial globalization which I'm treating more or less as as the same phenomena with new asset markets being developed with the help of the state in green finance and in the sustainable development goals and I've written a little bit about this that I think of this global political project as the the wall street consensus and you can find the controls of this global political project if you're bored enough like I am to read the communiques of the G20 or the very dry prose of the World Bank when it talks about maximizing finance for development and the logic of this wall street consensus is to say that institutional investors in particular that I've shown you at the beginning or sitting on trillions of US dollars would very much like to mainstream and to move away from sort of impact investment into rendering their entire balance sheet a sustainable into greening their balance sheet and into participate and in participating in achieving the sustainable development goals and how do we do that in a world where there are limited fiscal resources where we can turn sustainability into a profitable business right just we have to think through what are the mechanisms through which we can ensure that we can attract institutional investors money into local bond markets and by this when we talk about local bond markets in this context is local green bond markets or local SDG markets and there are two important sort of mechanisms through which the wall street consensus that is a sort of five six year old political project global political project before the COVID-19 pandemic first the risking state is very important it comes and it works together with the multilateral development banks and the idea is that institutional investors would like to to get involved in more sustainable markets but they need to they need to have the right risk return profile because their mandates sometimes are limiting and to the risk this new SDG asset classes the state can take an important role by assuming particular types of risk and very important because of the narrative of financial of fiscal constraints most of the projects that are coming or that are being proposed for creating a vestibule SDG assets will be created through public private partnerships that is the public and the private sector are coming together to work out how for example a highway can be financed can be constructed financed and then put into use and PPP is typically commodified what we think of public goods in the sense that PPP in health means a hospital that will charge user fees that will charge fees for health in road infrastructure it means a highway that will charge user fees in energy infrastructure it means an energy sector that increases energy costs or takes or removes caps on on energy costs and PPPs have a very specific and peculiar risk structure attached to them and there is a lot of work being done on making sure that some of the risks in in PPPs are assumed by the state and I can give you examples of that when if I have time the second leg of this was three consensus is a leg of Americanizing local financial systems and it says well in order to create investable SDG assets or or investable green assets you have to make sure that your financial system can welcome these institutional investors in other words you have to make your financial system look like the US financial system and I thought I'll just give you a couple of pictures of how active this was three consensus narrative has been over the last two months here from one shadow actor euro clear that discusses how Ghana is making very important steps towards Americanizing its local financial system towards creating what we would call the plumbing of market-based finance the same from a financial times article today talking about their convergence in infrastructure and sustainable investments through the ESG framework and I'll come back to the ESG framework in a second but I guess the punchline of this last sort of part and of the question of where we are we are heading to heading to is that the post pandemic post after the pandemic we will see this is my my projection but I'm an economist so I it may it will be very wrong it may be very wrong is that the we'll see a worse three consensus on steroids in the sense that the very large increases in public debt associated with the pandemic will make ppp's even more attractive as strategies for a post pandemic recovery in the sense of promising to generate large infrastructure projects that are going to put a lot of state or fiscal resources of the line so that's a promise that is quite empty but in in political terms I think that's a very important promise and in high-income countries we we have already seen calls for green recoveries and I think these green recoveries will be very much led by shadow banking or by private finance and I wanted to just show you a a figure from the IPCC draft report for 2020 which to my mind summarizes quite well how powerful the worst consensus is in let's call them technocratic circles that are discussing climate change and the solutions to climate change and what you see here is a vision of dealing with a climate crisis by making shadow banking as the most important private actor in delivering on climate in on the climate ambitions and what you have there of course is the kind of financial instruments that we are we know from or we are familiar with from shadow banking disease remember we define shadow banking as as market-based finance and you see here bonds green bonds securitization being identified as the types of financial market instruments that should be promoted in order to deal with the climate crisis and you see here the language of risk and liquidity that I described earlier and I would say quite quite positively put in the sense of risk transfers to the private sector but what the IPCC draft report recommends is public private partnerships where the risk transfers that are really relevant are the ones that are coming from the private sector to the state I want to spend a bit more time thinking about why why the what what do we how will we get green recoveries and why do I think that they are going to be finance-led just quickly I'm giving you three more minutes because we have a couple of questions as well I have two more slides okay very good so we know from the climate debates around that we've had just before the pandemic that the controversially issues are in terms of sort of shadow banking meets the climate crisis have to do with how do we decide what is green and what is brown or how do we green shadow banking and market-based finance and that's a question of who decides what are the rules for identifying green and that's the discussion of taxonomy and then who decides how these taxonomies will be used in order to green the financial system and what the world street climate consensus says and this is where I think we will get a finance-led sort of green recovery and I'm using quotation marks I would say a finance-led greenwashed recovery is that increasingly we are seeing that it is world street that is pushing for its own preferred version of of identifying green and brown and that's through the ESG rating system I won't spend too much time on it but it's very clear to me by following for example the the policy involvement of BlackRock that ESG will become the private taxonomy that is being used to rate financial instruments for their sustainability and greenness and it's a very unreliable taxonomy and it opens the door to a very significant amount of greenwashing there is an article in the Financial Times today that makes exactly this point and why this matters I think and why the future of the post-pandemic future will be in a sense a shadow banking future is that the state because of the narrative of austerity that I think is already sort of taking accelerating it in its pace and its political interest we will see the state trying to encourage and subsidize greenwashing and subsidize green financial instruments in other words the risk both brown assets because it doesn't identify them as brown but also the risk green assets by incorporating in the central banks sort of policy toolkit that's a preferential treatment of green based or green financial instruments so I'm going to finish by saying that I'm a bit skeptical about our about the political context and momentum for thinking through the implications of shadow banking for the post-pandemic world what I expect to see is a lot more both SDG and greenwashing with a cost socialized through the balance sheet of of the students through fiscal policy one way or another and in order to think about how do we politically mobilize to to fight against this system we have to think about the political power a political order that underpins shadow banking and there is a lot of political power there and structural power there is a lot ideological resistance to removing the independence of the central banks and a lot of ideological a version to to big states that I don't think we have overcome this easily but okay I'll stop Marie apologies to you and your sense of timing no it's actually I let you go a bit over time because we only have four questions that come in for now and so I'll let people ask questions for a little longer if they want to but we have two questions that are kind of touching upon the Wall Street consensus and one is from Peter Andreas who is asking if you can mention what you consider to be the greatest threat to national development agendas for this approach this approach being defined as PPP for reaching and so while the greatest threats to develop in financing and to develop financing and can this approach be altered for greater or more sustainable development impact and then Carla is asking about the increase of shadow banking in emerging markets if these around capital controls could be enough to limit capital flight or institutional investors of institutional investors would that only erase any incentive of those to get involved in the first place and what are the policies would we have to push for okay so let me take these two I would I think in a sense if we think about okay so the first question was on the greatest threat to national development agendas that comes from the rise of the Wall Street consensus and I think there are a couple of things to take into account if we if we think about the trajectory of the developmental state in the 1960s and 1970s successful mental states in a sense had an ideological component and a structural component and the ideological component was an elite that could propose a national development strategy that involved typically industrialization and going up global value chains or value added exports so it could propose a a sort of project of in ideological terms of a project of development that had some purchase within the with a local economic and political elites so that's the ideological the structural part had to do with a with a technocratic capacity of the state to implement the kind of national development strategies that were that were proposed by this by the political elite and what we're seeing with the Wall Street consensus is a reimagining of the role of the state where there is not much ideological work being done besides arguing that okay the state we need infrastructure countries need infrastructure infrastructure cannot be financed but very limited and very constrained budgets of poor countries and of emerging countries I guess now we can argue that you can make a persuasive argument that any any country has a constrained budget because of the impact of of covid and with this logic that you can you can do things with a private sector as long as you do some the risking what to me the the greatest threat is that it's very difficult to propose a counter narrative that in a sense legitimizes a green developmental state right or legitimizes a green new deal of economic discourses because it would require countries all over the world to basically articulate a vision of greening their economy and greening the financial system that goes both against the structural constraints of fiscal policy and the ideological constraints that come from the political power of carbon financiers so in a sense the more Wall Street consensus we have the the less space for a green developmental state we have and and that is a con that is a con it's an interesting story to to trace because obviously different countries will have different trajectories and different domestic policies will have different political struggles but if I look from Nigeria to Peru to Indonesia to Egypt very different countries where the Wall Street consensus is already quite powerful in sort of mobilizing local political support it tells me that trying to fight against this pervasive narrative that with the help of institutional investors we can solve development problems much easier than otherwise it's a very difficult narrative to resist so I'm I think it closes down a developmental space in in ways that are far more technocratic and far more sort of obscure than we are used to because you have to be able to deconstruct the the problems behind a narrative of maximizing finance for development that requires you to spend I don't know like me 30 minutes explaining what what is wrong with local currency bond markets aren't they great because you don't borrow in US dollars then increase of shadow banking in in developing countries and how do we address this I think that's another sort of discursive bind that we progressive economists find ourselves confronted with and that is because the the the story of bringing shadow banking into your local financial system is a very positive story of bringing institutional investors that are patient and that want just a little bit of liquidity and just a little bit of the risk to provide you with the financing that you're requiring in order to develop sustainably that is a narrative that is difficult to fight because the alternative that is that is usually proposed is okay then do you want all these developing countries to borrow in US dollars we know that is a very bad idea or the alternative is and and the progressive alternative would be to say well we need to go back to the old days of the developmental state and a very repressed financial system so there is a lot of argumentative work to be done and and we are not there and how do I know we are not there even remotely and I think Christina Lascarides I hope I pronounced your name correctly touched upon the last week is the the very puzzling absence of capital controls in the COVID pandemic very few countries have resorted to capital controls even Turkey that is notoriously sort of averse to capital controls but also notoriously vulnerable to very complex financial dynamics nobody is using capital controls and to me this is a reading of the political mood in in developing and emerging countries towards reimagining the role of the state as a developmental state so I would I would say what we are going the fact that capital controls are not on the table for countries that have been very severely affected by the pandemic and instead of capital controls what we what we have seen in action is the the risking state right so the central bank doesn't say I'm going to stop non-resident investors from exiting my government bond market instead central banks with capital controls instead central banks are saying I'm going to the risk my local government bond market for institutional investors by putting a floor on the price of of these securities so I think they I'm pretty skeptical about the possibility or the political appetite for a very strong deregulation of of shadow banking right thank you we're going to move on to some questions we're kind of developing this but more specifically policy related and there's one from Owen Lewis who says carol carol and sysco recently wrote about the dangers of issuing too much safe debt which she writes leads to investment famine and I'm understanding your fantastic presentation correctly does the necessary backstopping of shadow banking liquidity create a permanent situation of investment famine and then there's another question from Brian Kim who interestingly asks um what would be the consequence of Larry Fink issuing the orders to the Fed and the EU Commission and how will it benefit from and direct the bailouts you might think in those those lanes and I'm going to have to ask you to only to answer those questions in three or four minutes if possible okay so let me let me just say that yes Caroline is the sysco's point about too much safe debt is in a way um uh very similar to the arguments that I'm making about the the risking state in the sense that and I think she she argued the same uh that we have a political economy of shadow banking or of market-based finance where there is the the the the risking actions of the state are creating too much safe debt in the sense that they are completely altering the risk return profile for a for market-based finance and this altering of risk return profiles is not one that is benefiting me as a pensioner right because my although I am a de facto a lender to the shadow banking universe simply by having contributions to the pension fund we have seen that pension fund the owners of pension assets like myself for pension contributors we are also being squeezed at our end by um what I would call I don't know I think the lead financiers is in some ways a difficult category or a problematic category because it sounds quite shadowy but there is there is a class aspect to this that a couple of colleagues wrote about recently there is a class politics to aspect to shadow banking that has to do with the political power and the structural power of global financiers and it's not benefiting people like you and me whether this will create an investment an investment famine I am not quite sure that I agree with Caroline but I haven't thought enough through it I think it is fair to say that there is a push for a commodifying more and more uh public goods and that that what we think of in a sense capital investment may or may not be restricted by the the growth of shadow banking I'm not convinced that necessarily the growth of shadow banking goes hand in hand with the an investment famine but it that certainly distorts what we would think are signals about investment and fundamentals that are coming from securities prices and I will I will I think I will stop at that but maybe Caroline she's my colleague at Ui maybe we could have a webinar where we're discussing this further and then the question about Larry Fink and and the role of BlackRock uh to my mind the fact that Black BlackRock uh has been uh made it's sort of an official partner to the to Fed's interventions it is now an sort of official partner to the European Commission's greening finance agenda is not only a signal signal of the political power that that shadow banks have continued have amassed and continue to amassing but it's also a sign of their ability to deploy this political power in order to insulate uh their balance sheet from what would be in a market-based financial system that Milton Friedman would like to see what would be the sort of normal changes in uh risk and return or uh that would mean for higher for higher returns you have to assume higher risks in a sense that that distribution is um or that pairing is being completely altered by the interventions of of the state and that's something problematic and what we have here and this takes me back to my days of thinking about the social contract between the the regulated banks and the state and we know that historically banks were provided with backstops to for the some of their liabilities that we we hold as assets for their bank deposits as part of a social contract where the state said okay i'm going to uh backstop these liabilities but in return i want you to be properly regulated and and this uh political uh power of uh black rock and others is a form of creating a social contract where only one party that is the state uh does things for for the other party that is private finance there are very few regulations that are in a sense exacting some compromises and some trade-offs from from the shadow banking world for in return for the state the risking their systemic liabilities thank you for that um it's actually already four o'clock but i'm gonna we're gonna go like two minutes over time um oh no um i want you to finish on um maybe um talk about what kind of space for action that exists for heterodox economists and people who want to um don't say challenge this bleak uh outlook we have at the moment uh for the post pandemic shadow bank takeover um we will have a couple of sentences of kind of where we go from here to end this session off i don't know i am uh i i guess i was i think there are many sort of moving parts of this of this political project and uh and we need to be i thought for a while that we could mobilize and i guess the most useful mobilization would be around a green new deal type of responses to the climate crisis but i'm not so sure anymore that the green new deal is remains the kind of sort of urgent and salient political project that we had before the pandemic so in a sense that is something that remains to be seen whether green if green recoveries will become um politically important for the global i guess for the global policy elite then that's a space to mobilize because there it's very easy to to make a case that the shadow the system shadow banks or carbon financiers and they are making the rules uh by which they their balance sheets will be greening so mobilizing mobilizing around that is important at the same time i think the heterodox economists have a responsibility sort of more responsibility in some ways to to make more visible the ways in which uh the the plumbing of market-based finance and market-based finance in general uh the plumbing is political and its ramifications go beyond you know some sort of exotic things that are happening to developing countries but go very much into the basic social contract between the state and its citizens through fiscal policy and through i guess to some extent monetary policy so it's a it's in a sense a tall order because we need to understand the system to fight fight it and change it but yeah that's the only thing i can think of or or we all stay indoors for a very long time and then everything is sorted because we can't no no no capitalism can work without i don't know some consumption great thank you um at least that's something to to be with um we'll end here uh i'm just quickly going to say that we have our next session um the eighth session on wednesday at 3 p.m as well uh where we'll be talking about contemporary pathogens and the food system um the speaker will be Harun Akram Lodi and the moderator will be Sarah Ansari um thank you so much Daniela for this uh very enlightening yet uh depressive my pleasure and thank you to everyone who participates it i don't want it to be depressing but know the enemy is a very important part of the political struggle it's important you have to call it as it is i suppose okay thank you bye bye bye thank you