It Could Happen Here - CZM Rewind: Shadow Banking: The Once and Future Economic Apocalypse

Episode Date: July 22, 2026

Mia teaches Molly what shadow banking is, how it caused the 2008 financial collapse, and how they’re threatening to do it all again. Original Air Date: 3.26.26 Sources: https://www.fsb.org/work-of-the-fsb/financial-innovation-and-structural-change/non-bank-financial-intermediation/ https://www.cnbc.com/2019/04/11/shadow-banking-is-now-a-52-trillion-industry-and-posing-risks.html https://pmc.ncbi.nlm.nih.gov/articles/PMC7992100/ https://www.imf.org/external/pubs/ft/fandd/2013/06/basics.htm https://insights.som.yale.edu/insights/inside-the-cdo-market-that-catalyzed-the-financial-crisis https://www.congress.gov/crs-product/R48512#ifn146 https://www.jstor.org/stable/26153238 https://www.newyorkfed.org/medialibrary/media/research/economists/adrian/1306adri_map.pdf https://tellerwindow.newyorkfed.org/2025/10/17/nbfis-in-focus-the-basics-of-private-credit/ https://www.federalreserve.gov/econres/notes/feds-notes/bank-lending-to-private-credit-size-characteristics-and-financial-stability-implications-20250523.html https://libcom.org/article/debt-first-5000-years-david-graeberSee omnystudio.com/listener for privacy information.

This is an IHeart podcast. Guaranteed Human. There's no shortcut for saving time, but saving money is simple. Just combine your car and home insurance with Bel Air Direct and save. Get a quote at bellair direct.com. Hey, Portlandia fans. Carrie Brownstein and Fred Armisen here. The Dream of the 90s is alive in podcast form.

We're launching Podlandia AEO rewatch, our brand new podcast where we revisit every episode of Portlandia together, breaking down sketches, going deep on our ice. iconic characters and pulling back the curtain on how it all got made. And we'll also be joined by the people who helped bring it all to life. Guest stars, collaborators, and friends, including director Jonathan Chrysall, the mayor himself, Kyle McLaughlin, legendary musician Amy Mann, and many more. Kyle is going for it here.

You fully improvised, not just words, but a song about it. Well, I thought you were all going to write a song. I remember you thinking that. Listen to Podlandia. A.O. Rewatch on the IHeart Radio app, Apple Podcasts, or wherever. you get your podcast. What's up, fam? I'm sports journalist Ari Chambers.

Hey, what's up y'all? It's your girl, Sam J. And we're the host of Everyone Watches Women's Sports, a new podcast from Together in I Heart Women's Sports. We're breaking down the biggest headlines. Naomi Osaka, showing out. Shout out to you, Naomi. The viral moments.

I've been obsessed with Kashan Rock's boxing journey. She looks good. Her combos are swift. And the stories everyone's talking about across women's sports. Because everyone watches women's sports. Listen to everyone watches women's sports. on the IHeart Radio app, Apple Podcasts, or wherever you get your podcast. This is Chelsea Handler from Dear Chelsea.

Every week, the news gets worse. The world gets crazier, and Yamanika is here to tell whoever's responsible, you're the problem. Do you know I just found out who Sidney Sweeney was? If he got a bunch of women, then I should have a bunch of men. Do better or do less, so I don't have to do so much. I'm Yamanika, and I'm out. Listen to You're the Problem with Yamanika on the IHeart Radio app, Apple Podcast,

or wherever you. you get your podcast. Welcome to It Could Happen Here, a podcast where a bunch of incredibly convoluted and very silly financial instruments destroy the entire world economy. I am your host, Mia Wong. And with me today is someone who does not spend all of her time deep in the bowels of arcane bullshit written by different Federal Reserve boards. And that is Molly Conger, who is the host of the absolutely delightful, I mean,

Okay, I guess this is a who is really winning here kind of question in terms of the things we research. You spent a lot of time reading stuff written by Federal Reserve guys. I read a lot of stuff written by guys who want to kill the Federal Reserve guys. Yeah. And you know what? I still don't know what the Federal Reserve is and I'm not going to find out. You know, I don't actually think knowing what the Federal Reserve is somehow. It doesn't change anything.

don't think it's actually relevant to this. I mean, it kind of. It's obviously, it's relevant to everything. But what Mia means to say is the reason I'm here is because I don't know what the economy is. And at this point, I'm afraid to find out. And unfortunately, your worst fears are happening. Oh, don't worry. By the end of this, I will not understand. I am going to attempt to explain the economy. And by the economy, I mean, shadow banking. Yeah. Also, before I go into this, So you should listen to weird little guys. It is, it's really good. I like it.

All my friends really like it. Thank you. Yeah. It's somehow a nice, comma, kind of relaxing show about neo-Nazis. So it's got very chill vibes. Yeah. For a show about guys who are trying to like blow up school buses.

Yep. So, all right. You know, I'm reading this, I'm looking over this script. miraculously, this isn't, oh wait, hold on, I think I cut the part where people blow up school buses. There was legitimately a segment in here that I might put back in, which I wouldn't close up a school bus. What a crossover event. Oh boy. Oh boy. The Saudi is really good at that shit. Turns out. Okay, okay. But let's get back to the topic at hand, which is, what is shadow banking and why does it matter to all of us people who live in the normal real world and not?

in fake finance world. Does it have anything to do with shadow wolves? Unfortunately, no. What about shadow facts? Sadly, actually, there probably is a connection between the financing for the Lord of the Rings movies and shadow banking. I'm just too tired to work it right now.

I have dragged us off track and we haven't even gotten on track yet. What is shadow banking? Okay, so the good news, the good news, this is the first, it's not the last piece of good news we're going to get this episode. But, comma, the definition used by most non-academics is actually not that bad.

There's a pretty good, it's very wishy-washy because it's a congressional report. And so it's specifically not supposed to be taking a stance in either direction on anything, because it's the Congressional Review Office and they're supposed to be neutral, etc., etc. Allegedly. Yeah, right. You know, and like, obviously they're not. But, like, you know, it's like kind of fine congressional report on the subject. And they do the thing that almost everyone does, which is they go back to the definition created

by the Financial Stability Board. And I'm just going to quote that because it's not that bad. Quote, financial activities facilitated by institutions other than central banks, banks, or public financial institutions. So it's banking that doesn't involve a bank. Yes. Canceled. I'm out.

I'm out already. Yes. And they don't mean like me loaning you. $20. No. No, no. Of course not. They just mean unregulated banking. Oh, yeah. Which you can't legally call banking. I mean, you actually can legally call it banking. It's just things get weird really quickly. I mean, I'm not a bank understander, but I know, at least in Virginia, you can't incorporate a business that has the word bank in the title unless you are legally a bank. Because that's like misleading. Yeah, I don't think they can legally call themselves a bank, but I guess you can call it banking activity.

That's stupid and I'm mad already. Yes. Oh, you're going to get so much more mad by the end of this. So the base definition is it's not that complicated, right? It's something that does banking stuff that is legally not a bank. You know, and so we can talk about what kinds of things are, is this, right? It's like private equity firms. It's hedge funds. It's venture capital firms. So it's like evil stuff that ruins the world for no reason. except for like 10 guys make money. Yeah, but it's also, you know, pension funds.

It's like insurance companies. It's sovereign wealth funds, business development companies, repo markets, broker dealers, special investment vehicles, securitization vehicles, money market mutual funds, asset-backed commercial paper conduits. Hey, here's the thing, bud. Most of those things you just said to me are fake and they make me upset. It's really bad. Sovereign wealth, shut up.

That's not. That's nothing. I still, you know. All these things are just like different ways of saying like, you're poor and you're going to die. Yeah, I mean, the funny thing is sovereign wealth fund is like kind of a less fake one in that it's like, it's all fake. It's all fake. It's like, well, it's like this is like the kingdom of Saudi Arabia has pooled all of the money it's gotten from its like horrific crimes and put them together into one giant thing and that's a sovereign wealth fund.

Oh, so it's good is what you mean. No, I am a notable. There is, by the way, a camp of people who believe that sovereign wealth funds are like a socialist thing and that you could use them to do socialism. I'm going to jump out the window. I think this is so stupid. Yeah. This is, we haven't even gotten into the nightmare stuff. So remember I was talking about the financial stability board definition in that congressional report, right, where it's like, okay, this is a bank that does non-banking stuff.

Or a non-bank that does banking stuff. Sorry. Oh, I guess we should say, I guess we forgot to say at the top, the reason you're explaining shadow banking to me is because we saw. article last week that what those those not banks were putting a stop on withdrawals from their not banks and I didn't know what that meant yeah that's amazingly this this is so convoluted we're not even going to get to that this week right but like that's why we're explaining yeah there's like there's like there's like a mini bank run going on with these like shadow banks no it's not banks yeah so we're going to get into how that can happen and why but

before we get there we need to talk about All right, to get a sense of the complexity of this, right? The congressional report, like the accepted terminology for this is not shadow banks. It is... Right, that can't be their official name. That's not their government name. No, it's non-bank financial intermediation. Now, what the fuck is that?

This is where this episode goes completely off the rails, because the components of what count as intermediation are so complicated. I am not going to try to describe it until literally the end of this... I mean, is it like, what is Vennb? officially. Venmo's not a bank, but it provides like financial services. Actually, I, it might. Because it's like a financial intermediary, right? Yeah, it might technically be a non-bank. I don't know what the regulatory structure is. It's not legally a bank. Yeah. I think I think that technically is one. Score one for Molly. Yeah. But, okay, so this is, this is going to get really bad.

Okay. So what I first started researching his episode, right? The first thing, that I click on is the Federal Reserve's chart of how the shadow banking sector works compared to the normal banking sector. Molly, you have seen this. Because I posted it as a joke in our group chat. This chart

I have like a very, very large, like it is like a big normal ass-sized monitor that I like do my work on. I had to zoom in to 380% just to make out the letters that label the boxes on this chart.

If you want to read it, you have to zoom into 500%. That doesn't seem like a well-made chart. No, here's the thing. It's actually really good. It's just this complicated. I learned later from a paper by Copenhagen Business School professor, Audenie Helga Daughter. We're going to come back to Helga Daughter's work a lot in this episode.

But I learned from her because she has also experienced seeing this same chart and going, what the fuck-ass chart? I found out that the Federal Reserve recommends that in order to have the diagram be legible, you are supposed to print this chart as a three foot by four foot poster? Oh, that makes sense. Like meeting style. But like on an easel. Put it on easel.

Yeah, right. But like, again, this is a diagram that he's just labeling the parts of the system and making, and making like a line that shows how stuff moves through it. I guess I still don't know what we're talking about. about. Yeah, so this is what we're going to get into in a second. But first, we have to talk about something even more bleak, which is it, oh, yeah, by the way, these, like, non-banking bank things, like, all these, like, venture capital

firms, all these hedge funds, all these fucking weird, ghoulish banks that are not banks. Yeah, they have twice as many assets than the regular banking system. Oh, that doesn't seem good. Oh, it's about to get worse. It's about to get worse, Molly. That's like saying I keep 70% of the food in my house outside on the porch. Like, no, it goes in the fridge. Oh, it's so bad. It's so bad.

So, okay, there's a pretty good congressional report that I was talking about earlier that has this terrifying quote. Quote, as of 2023, the broad measured total financial assets and narrow measure assets at NBFIs. This is the shadow banks reached $85.5.7 trillion. and $22.2 trillion, respectively, in the United States. But that's more than our GDP. That's almost three times our GDP. So that's a fake amount of money. Yes.

That's not real at all. But it kind of is, right? These compare to total financial assets of $31.1 trillion at banks in the same period. So again, this is almost three times our GDP in assets that they manage or control. So where does the money live? In a whole bunch of unbelievably convoluted bullshit, like combinations of like loans and real estate and stuff like that. That's not real money. So like, okay, imagine this is schoolhouse rock and instead of like the singing bill, you're like a dollar bill.

Like, where are you? We are about to explain this. Where does the money live? Yeah. So, okay, okay. where we are about one, two paragraphs away from getting to this, or like one paragraph. Okay. So the other thing that's very important about this, and this is something Molly was kind of touching

on at the beginning of the episode, maybe I should have opened with this. Yeah, these people, these are the people who blew up the economy in 2008. Well, yeah, because they're making stuff up. Yeah. It's so, it's so bullshit, Molly. You're going to get so mad. This is Calvin Ball. Fuck you, I win.

Yeah, it literally is. It's nonsense. It's gibberish. They're doing fucking bullshit. betting markets with the entire world economy. Oh, yeah, we can all do that now. Yeah, it's fun. It's like we now have the power to do the shit that destroyed the entire world economy in 2008.

So the thing about shadow banking and the reason why it's complicated to explain is that it's a catch-all term for like a million types of institutions that do different things, right? The commonality they have is that they're all not regulated by the banking regulations. Right, it's like we found a way to do financial crime. It's not illegal because they forgot to make this illegal. Yeah. And, you know, but the thing is, it's so embedded into the system that, like, the U.S. debt working is dependent on the shadow banks buying it.

Well, I don't believe in that either, so I'm good. Oh, it's so fake. Molly, I'm not even going to attempt to explain what an overnight repo purchase is to you because it's the fakes thing I've ever seen where they just, they make one trillion dollars exist overnight and then it stops existing at the end of the night. It's incredible. I love how much of the economy is based on guys just imagining stuff and agreeing on the thing they imagined and then trading their imaginary tokens. Like, is fucking pogs grow up.

Yep. This is, this is, this is, this is unfortunately what our entire world is based on. It's so fun. Oh, God. Okay. So what is actually shadow banking? I've given you the broadest definition possible, which is like, it again, it's the, it's doing bank shit without being a bank. but let's go back to the beginning of the term, which is where most people tend to start or get to eventually.

This is from an IMF paper, quote, the term shadow bank was coined by economist Paul McCulley at a 2007 speech at the annual financial symposium hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming. And basically, it's institutions that borrow money in the short term through money markets to finance long-term loans, but they aren't banks, so they can't go through the Fed. They're financing loans with other loans. Yeah, we're going to, so. From a not bank.

Yeah. But the big loan is from a real bank, and then the little loan is from a fake bank? Give me. And none of the money is real. Hold on, hold on. Okay. We're going to get there. We're going to explain this in terms of burgers.

It's going to be okay. I believe in us. Perfect. Perfect. Yes. But the other thing he describes is, is, and this is from Helga daughter, quote, in the speech, he describes shadow bank. as the whole alphabet soup of leveraged up investment conduits, vehicles, and structures.

So what he's talking about specifically is these are the guys who blew up the economy in 2008. Like these specifically, this is what he's talking about, right? These are the people who took a mortgage and then did a bunch of bullshit to it in what's called a securitization chain. They did a bunch of bullshit to it so you could give the loan to someone else. So you could sell it to someone else. And this blew up the entire world economy. That's what he's talking about.

He's talking about the banks that are not banks, the shadow banks, that did all of this bullshit to turn like someone's mortgage into a fucking thing you could bet on. So selling debt is like selling the idea of future money? Yeah. And then sometimes that future money doesn't come. Yeah. So, okay, I will say you do not need to understand this yet because we haven't, we still have not started the actual explanation. I'm never going to. I believe in us.

We can do this. It's not that bad. Okay. I'm not torturing you on purpose. I'm just numb. It's, okay. I believe in you. So I want to mention that I'm very indebted here to the paper I mentioned earlier from

Copenhagen Business School professor Audney Helga daughter who wrote a, she wrote a very good simplified explanation of this in her review of international political economy article called Banking Upside Down, the Implicit politics of shadow banking expertise. But, okay, as you can tell by the fact that it. It's called banking upside down the implicit politics of shadow banking expertise. This has been, when she's simplifying it, she's simplifying it from like economists down to like a political scientist or an anthropologist can understand this. I am a throughout to attempt to simplify this down to a regular person can understand this.

So I'm drawing on a lot of her stuff for the first part of this explanation, but I am, I've turned it into burgers. So. I'll do my best. I'm being very brave. Okay, so a shadow bank, right? It's something that does banking shit. That's not a bank.

So what do I mean by banking shit? That was my next question. Yes. I think we need to start with what is a bank first. So, okay, okay. And this is where we're starting here. What does a bank do? I put my money in it and they hold it for me.

So no, actually. And this is the interesting part. No, they do stuff with it. Oh, yeah. They're holding on to the promise of my money. Yeah. So, okay, let's. Let's just look at this for a second.

So, okay, so regular people give them money to store in the bank. This is called a deposit. The bank takes your money and loans it out. Right. And uses that to make more money. This is how it pays you interest, right? It's taking your money and it's loaning it out to other people. It's buying things with it.

That part I understand. Yeah. And this is obviously a cartoon image. And I know there's going to be econ people who are going to be mad at me. Look, if you understand. Why are they listening to this? If you already know what this means, go away. This isn't for you.

I'm not humiliating myself for your entertainment. Like for the political economy, people hear, when I say stuff that might, that's like technically kind of fuzzy. It's for me, the podcast idiot. Yeah, like you understand this. Like, I'm working at the level of hamburgers here. So, like, we have to do some abstractions. So, okay, the important thing for our purposes, right,

is that there's two things here, right? There's like the deposit. it's the money you give them, and then there's the loans. Right. And these operates on different timelines, right? You can take the deposit out at any time, at least in theory, but they can't get the money from the loan back at any time. Right.

Now, this is like one of the critical things of what a bank is, is this timeline thing, right? It turns your money, which you can take out at any time, into a different kind of thing, this loan, which can't be taken out. immediately, right? And then they use that to make money. So this is called maturity transformation. This is a very simple concept they have made very complicated. This is one of the core aspects of that definition I was talking about earlier. This is one of the four things in it. But you now understand this. It's not that complicated. It's take short term, make long term, and we'll get to doing the reverse in a second. Oh, I don't think it works the other way.

It's going to go so badly. It's going to go so badly. I mean, like, I I don't know about bank, but just generally speaking, like, in terms of time and, like, how, like, material reality works. I don't think it works the other way. It's not great. It's not great, Molly. It's not great. Okay.

So, okay, there is, however, a problem here, right? Which is what happens if everyone tries to get their short-term money back at the same time? Oh, you can't. Yeah, right, because... That's why we have deposit insurance. Yeah, right, because the banks aren't holding short-term cash. What they're holding is long-term loans, and those loans, and those loans... like you can't pay someone alone.

Well, okay, actually, the crux of this episode is they found a way to do that. Yeah. Yes, and it blew up the entire world economy. But if I wanted $40,000 out of my, if I had a checking account with $40,000 in it, and they gave me my neighbor's mortgage as a promise. That wouldn't work for me.

That wouldn't work for me. No, fuck that. No, no, no. You need, you need something that can buy a burger, and they're not giving you that. So, okay, this is very, very bad. If people try to do this, it's called a bank run. It is not good.

It's bad. Yeah, and so this blew up, this blew up the entire world economy so many goddamn times that eventually we got financial regulation. Now, this regulation requires banks to have money that is like actual cash they can hand you, like right now on hand at all times. And the government gets to, and this is a little bit of someification, but like, yeah, That's how it works, right? And it's insured by the government.

Yeah, the government will give you your money back if the bank goes under up to like a certain amount. $250,000, FDIC insured. Yep, this is, this, that's what that means, right? The government will give you your money back. But also, there's a tradeoff to this. So this is a massive benefit for the banks, right? The fact that if they go under all of their assets will be repaid by the government,

it's a massive benefit for them because it means that putting your money in the bank is like safe. Yeah, I love that for me. Right. Yeah, it's good. Now, the cost to the banks is that the feds get to see their balance sheet, right? The feds get to see what they're doing with their fucking money and they get to make sure that these banks aren't doing insane shit. Okay, that makes sense because they're insuring it. Yeah.

And that, like, they're not doing, like, unbelievably risky, awful shit and also that they're actually holding enough money to be able to pay people out. Right. Okay. So far so good. I understand bank. Yeah. Now, shadow banking boldly. asked the question. Okay, but what if you did all of the banking

backwards? No one had access to the books and the government will only pay you back if the entire world economy looks like it's going to die? I feel like at that point, the government should just step back. Here's the thing, here's the thing, right? I, I, yeah, like, I'm so down with this. like, yeah, I don't know, fuck it. Like, every single one of you motherfuckers is going to pay this off by working as a barista for 30 years. like fuck you.

But the government was like, nah, we want, like, we want capitalism to keep working. Make every hedge fund manager work at a Waffle House. Yeah. Fuck them. There's no shortcut for saving time. But saving money is simple. Just combine your car and home insurance with Bel Air Direct and save.

Get a quote at bellair direct.com. What's up, fam? I'm sports journalist Ari Chambers. Hey, what's up, y'all? It's your girl, Sam J. And we're the host of everyone watches women's sports, A new podcast from Together and I heart women's sports. Because let's be real.

Women's sports is giving us way too much to talk about these days. So Kelsey Finler, she became the first female solo roer to go from California to Hawaii. My first thought is like, what's up with the snacks? Like, what are we eating? The highlights, the rivalries, the breakout stars, the moments that take over your entire timeline. And the conversations that start during the game and somehow keep going all week. Every week, we're breaking down the biggest stories across women's sports. Naomi Osaka showing out

She beat Sabalinka Shout out to you Naomi You get the palm Naomi You get the palm for that Because we're not just interested in what happened We're interested in why everyone's talking about it Because everyone watches women's sports

Listen to everyone watches women's sports On the IHeart Radio app Apple Podcast or wherever you get your podcast Hey Portlandia fans Carrie Brownstein and Fred Armisen here You know us or rather you know them Tony and Candace Nina and Lance

Spike and yes the chicken We've played a lot of iconic characters over the years, but today we're showing up as ourselves to tell you about Podlandia, AEO rewatch, our brand new podcast. Each week, we'll revisit an episode of Portlandia from the very beginning, breaking down the sketches, exploring the backstories of our most iconic characters, revisiting the Portland locations you know and love, and opening up about our creative process. How did any of this get made? Why do we think that was a good idea? We're ready to talk about it. And we'll also be joined by the people who helped to bring it all to life. guest stars, collaborators, and friends, including director Jonathan Chrysall,

the mayor himself, Kyle McLaughlin, legendary musician Amy Mann, and many more. Kyle is going for it here. You fully improvised, not just words, but a song, a melody. Well, I thought he was going to write. I thought you were all going to write a song. I remember you thinking that. Listen to Podlandia. Ayo rewatch on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts.

My first guest is Perrits Hoken Shakira, Luke and Yerrin Samira and Gracie I'm so excited on the bouncy bed You have surprises many surprises Welcome to Sweet 305

Where the group chat comes to life What up! It's like a way of saying like Hello, hello, my friend, hello Myrana What up! Look, look, never I've ever with nobody.

Except you with my My kids, my children, my love. Oof. Oof! That's incredible.

Yeah, the telenovela. You're the only person I know that loves a yellow starburst. It's lemon. And no

there's someone like you'd like to collaborate with this person. This is Sweet 305. Listen to Sweet 305

with Lele Pons as part of my Culture Podcast Network on the IHeartRadio app, Apple Podcast, or wherever you

get your podcasts. Okay. I'm going to say something and then I'm going to make a disclaimer. So the kind of shadow banks that did 2008 work in the opposite direction. They start with debt. They take that debt and they turn that debt into like cash, right? Can I do that? No. Does that work for me at my house? No. So, okay, and I also want to mention, there's a bunch of other kinds of shadow banks. The kind of shadow bank that's going under right now is not really this. The kind of shadow bank that's like exploding right now is a kind of shadow bank that's like, what if a bank that wasn't a bank gave a completely unregulated loan with secret terms to a corporation?

And that's the one that's going under right now. But for a long, long time, the kind of shadow bank that was really important to the global economy, and this is still like a massive portion of how all of the economic system works is these ones where you're trying to take debt and turn it into something you can trade for cash. So, okay, you take debt, right? You start off with a mortgage.

Okay. So these mortgages pay out over the extremely long term, right? But you want to be able to trade this mortgage for cash. Right. And this is a process called securitization. Turning this mortgage into something you can sell for cash is making it into what's called a security. So now what happens, right, when it's packaged into a security, when there's a securitization process and then like the regular bank, the regular bank sends the mortgage to the shadow bank.

And the shadow bank does like stuff and turns it into a security. And now what this means is that instead of you who paid the mortgage owning money to the bank, you own it to the shadow bank or whoever the fuck the shadow bank sells it to, right? Okay. So the real bank is involved. The real bank is involved. Yes. Oh, yes. The real bank is making so much money off of it. This is why 2008 happened. Oh, because Wells Fargo did this with everybody's mortgage. Oh, yeah. Oh, yeah.

Okay, because I couldn't figure out, because you said this was not 2000 named. I was like, I thought Wells Fargo did that. That's a real bank. Oh, no. But the real bank was shadow banking. The real bank figured out a way to sell their mortgages. And it's going to get much worse as we go through this. But that's what causes this, right? is turning these mortgages into these like securities and like these like

collateralized debt obligations and these like special packaged bullshit that you could sell to someone. So the way I would describe this is it's like, do you know how a bond works? Honestly, Mia, I do not. Okay, we let's do this. We can do this. Okay, so the kind of bond that you are normally likely to encounter is a government bond. Yeah. Okay, so you pay the government money. to buy the bond.

And what the bond says is at a certain point in time, you hand it back to the government and they pay you more money. Right. It's like a promise for later. Yeah, right. So it's basically a loan, but it's a loan in a form where like the government's technically like selling it. And you,

and then the other thing about bonds, right, is if you hand the bond to someone else, well, okay, I mean, this is technically bare bonds. But like, you can then give the bond to someone else. And now if they give it back to the government, they get the money. In like 10 years, they get the money, right?

Right. Okay, I get that. And you can sell these things. And this is what these people are doing with mortgages. That's not as, like, secured as, like, a government bond. Because if I have a $100 government, like, if I have $100 bearers bond, I know for a fact that on the date on the bond, it's going to be worth $100. Yeah, they're going to pay out.

Right. But if it's somebody's mortgage, the government's going to pay it. But, like, the mortgage got, the person who has the mortgage. That's not real. That's not money. Nope. Yep. That's like that's a promise, but like my hand is behind my back. Yeah. It's a shit show. And this whole process is the largest sort of, I'm not sure if that's actually the largest. I would need to actually like get. I've never, I haven't seen in-death breakdown sectorally, but like. None of this is real. You could just say whatever. Um, this, this is one of the most important kind of shadow banks because in order to turn this mortgage into a security, the moment you do that, you do this by creating what's called a special. purpose vehicle or someone else creates one. It's called a special purpose vehicle.

Yeah. It's a nightmare. I'm going to put this mortgage on a roller coaster. Yeah, it's fucking ridiculous. Right. It's a special purpose vehicle. It does a loop-de-loop. But the moment you create one of these, the moment you create one of these like security

mortgages, right, that's a shadow bank. You've created a shadow bank. Right, because that's not real banking, that's shadow banking. Yep. Because you're creating another entity that is not a bank that's doing the banking stuff. I thought that the banking and the shadow banking were like separate things, right? Because it's like, no, no, no, no. It's like, oh, they're doing non-bank stuff.

They're all in on it. But if the bank is doing shadow banking, I would, I'm stupid, but I would call that a crime. This is another thing that cost 2008 because a bunch of what was happening here was. Why isn't that a crime? Because our country is run by the bourgeoisie, Molly. That's why it's not a crime. You're just telling me this for the first time. Yeah, it's bad.

So what happened in 2008, one of the things that happened, right, is so all of these regulators are supposed to be looking at the balance sheets of these companies. But they're hiding stuff off the books. Yeah, they were hiding these things in these like special purpose vehicles, like, in these like shadow banks. They didn't open the trunks on the special purpose vehicles. Yeah. So no one could see the fucking dead bodies in the trunks of the vehicles because they weren't on the balance sheet that like the government had access to.

What's the point of the balance sheet if you don't put the whole balance on it? I'm fucking, I don't know. And this is like legitimately, when you read the accounts of like why shadow making has exploded, and by the way, it's exploded since 2008. It's like way bigger now. Exploded like in popularity or like exploded as in like destroyed. There's so much more of it. There's so much more of it.

Because it went so well. It went so well in 2008 that now everyone's doing it. Because here's the thing. After 2008, we got like a little tiny bit of banking regulation. And the banks lost their fucking minds. And so more and more money went into. all of these unhinged shadow making things. Okay, but so like when a toddler has a tantrum, you don't give them a billion dollars.

When these shadow banks went under, these things were not backed by the government. The government bailed them out anyways. Yeah, they didn't have to do that. Nope. So they really, they learned their lesson. They really learned their lesson this time. Yeah, like, they bailed out these banks and they fucking sold you out. And, like, you know, like, one of the things that I think people have forgotten was there's

a thing called robocalls during the Obama administration, right? Part of how the financial recovery happened was that all these. banks would like go to courthouses, right? And they would just repossess mortgages on mass. Oh. And they had like a robot that was like sign. It would just sign, like a blank check sign on off on all these mortgages that were supposedly underwater. And they would just steal people's houses. People who were on top of their payments, people who like didn't know money. They would just take their houses. And this happened on mass. And this is like how the banks recovered was they stole everyone's houses. And that's a crime, right? Yes. It should have been a crime. like it was illegal. It didn't matter though because everything you're describing to me is a crime. It's so nightmarish.

Well, it's your thing. Most of the stuff I'm describing is not a crime. This was actually a crime. But why is nobody in jail? Because Barack Obama went up in front of these people and said, I am the only thing standing between you and the guillotines.

I'm pretty sure that's a direct quote. And why didn't he bring the guillotine with him? Because he wants the capitalist system to continue. I mean, that's a silly question. I know who Barack Obama is. I'm just upset. It's not good. Okay.

So let's get you another question that you asked, which is why would you do this? Why would you do this thing? Oh, to make money. Yes, but it's actually more complicated than that. Oh. Okay. So on the one hand, these assets, you know, a mortgage does make more money than just putting your money in the bank. Right?

That's like the basis of banking, is that they can use your money that's sitting in the bank and getting interest and then they make more money by spending it elsewhere. But so they're just doing this because they hate us, not just to make money. No, there is an actual explanation. There's the third reason. So then why would you ever have your money in a bank or buy something like, say if government bonds you can sell really quickly, right? Why would you ever want that? And the reason why is something called liquidity.

Right, you want to be able to spend the money. Yes. Rather than wait 30 years for it to get paid back. Yes. Liquidity is just how easy is it to turn whatever you own into cash, right? to real money because most of what we're talking about is not money. It's the idea of money. Yes.

So liquidity is literally, it's the burger test, right? Can you buy a burger with this? Can I eat this? Money is like the most liquid asset, right? Because you can turn this into a burger. Right. So liquidity is the only part of this that's actually money. Everything else is not money.

Yeah. Well, liquidity is the measure of how money is it basically? Like how easy is it to turn this into burger? Is this a special vehicle? securitization. That's not real, Mia. No, it's fake as shit, right? This is not that complicated, right? If you, if, if, if, if, if, it's like, like, you can, you can buy a burger with $10. Yes. Right. That's liquid. Actually, you kind of can't these days. I know. I, look, I, I, yeah, look, I, imagine a world where you can buy a burger for $10.

Imagine, imagine a burger. Yes. Imagine a burger that's purchasable. Now, what you can't buy a burger with is like the $10 that a guy you work with owes you for buying him a burger. Depends on how well you know the burger guy. Yeah, but that's where things get bad. Yeah. Right.

Now, the thing is, right, so the $10, the guy you work with, like, owes you, not liquid. You don't have the money in your hands, and if you want to get it from him, you have to, like, go ask him for the money, and maybe he has $10 and maybe he doesn't. Right? At which point you can't get your $10 back.

Until he has the money. But that $10 that I am theoretically owed is an asset that I have, not a debt. Yes. Okay. Yes. This is an asset. This is stupid. Now, loans are not liquid assets, right?

And they're not liquid assets because you can't get the money back, like immediately. So I don't have $10 I can spend, but on paper I do have $10 theoretical dollars. Yeah, right. And this is also like most of what billionaire money is. Fake, right. Because like most of their money is like in like a stock or some shit or like it's weird fake money. Like theoretically they could access this amount of money, but they don't have it. Yeah.

It's not real. Now, okay. But there is this question. So why would you keep your money and fake money instead of real money? And the answer is that it gives you more money back? Because say you're an asshole, right? And you're charging interest on your co-worker for that burger loan. Right.

So that $10 is actually worth more than $10. More money. Yes. So the $10 that I don't have is theoretically worth $12. You're worth more. Yeah, it's worth more than the money that you do have. I can get cheese on the burger. Yes.

Right? And this is like the fundamental thing of the banking system. Like one of them is that illiquid assets or like assets that aren't money are worth more than money? I guess like when I put a small amount of my savings into a CD, that's what I'm doing except normal style. They're doing it weird. Yeah, basically. Because that's like an illiquid asset that I'm I'm trading the ability to access that liquidity. for the potential of more money later.

Wait, sorry, when you say a CD, do you mean like a physical, like a disc, like a CD? No, a CD like at the bank. Oh, like the, yeah, yeah, yeah. The investment product. Yeah, sure. Yeah, yeah, yeah, sorry, I was like. No, I'm not talking about buying compact discs.

I would just sleep at 5 a.m. this morning. I'm talking about investing Mia ever heard of it? Wow. There's actually a really an annoying thing researching this episode because there's like, so CDOs are like a type of loan that we'll kind of get to in a bit, but there's also a tech position called CDO. It's like Chief something officer.

Chief Duky officer. Who cares? Yeah, whatever the fuck, right? But like when you're trying to search for stuff that's like about CDOs, right, the other one keeps coming up, I fucking hate it. Okay, okay, locking in, locking in, right? Lock and load. Now, what if you both wanted more money and also the ability to buy a burger? I guess I would probably break one of Carl's fingers.

This is the guy that owes me the $10, Carl. Yeah, but even then it's hard to, even that's like, this is too hard for these people. I would go to Carl's house and kick him out of it. Well, yeah, but the other thing is like, you are not very rich. Okay. These people, if you are really, really rich,

I am talking like billionaires, maybe like high, high class multimillionaires. Well, you can go to a shadow bank. Oh. Right? You can get a loan based on the loan. No. Well, the thing is that you have money, right?

But you want to turn your money into more money. Like, you have like actual cash, right? Like you are, you are, for example, a pension fund. No, I'm not. You have a shit ton of cash. Or imagine a pension fund, right? This is also really hard because it used to be easier to explain this. Because like we used to live in a world where people had pension funds and had mortgages.

And now we no longer have pension funds or mortgages. I live in an apartment and I will always live in an apartment Yeah, no So, okay, so like imagine a pension fund, right? You have a shit ton of money from your members paying into the fund But it's cash

You need to turn that cash into more money But also, you're a pension fund So you constantly have to take money back out In order to pay the people who are retiring To pay old people, yeah And this is also a thing that like, you know, if you're just like a rich person Sometimes you want your, a lot of times, you want your money in assets that are like you can turn back into real money but also make you a shit ton of money.

Right. They need to sort of revolve a little bit. They need to be like, yeah. I don't know, like a jello, like partially liquid. Yeah. And this is what the shadow banks do, right? Because the thing that you can buy is one of those mortgages they've turned into like a security, right? You can go buy someone else's debt.

Uh-huh. But because it's a magic security now, and these are called. mortgage-backed securities. And again, if you're old enough, you remember, yeah, anything about 2008, that's what blew up the whole economy, is these mortgage-back securities. Yeah, I've heard of that because it was bad. Yep. Terrible idea. And so we're still doing that? Oh, yeah. Oh, okay, good. I mean, it's less, specifically the mortgage-back ones are less bad. Also, they've started doing it with, like, commercial retail loans, which is incredible. Oh, great. So that's really fun. They're also doing with other unhinged shit that we're going to

do like next episode. And what these people are really buying aren't just these like, you're not buying like one person's mortgage, right? Right. They're like pooled and like bundled. Yeah. Yeah. They're like they bundled them all together and then you, you buy the rights to a percentage of, of the pool. It's not like when you sponsor like an elephant in Africa or something and they send you a picture of like a specific element at your family. They don't send you, they don't send you, they don't do a picture of the family you're harming. No. These are the Joneses. You own their fucking house. Yeah. It's, it's, it's a shit show. Um.

No. Well, I mean, eventually you might have to go figure out who that is because you like own whatever the fuck percentage of like the mortgages or whatever. But like, okay. So these are just like someone else's debt that you're buying. And the people who can do this are, you know, people who have billions of dollars. It's not you the listener. And by the way, if you the listener have billions of dollars lying around for some reason. Can I have some? Please, yes. Please, please give me some of them so I can house like literally every trans woman. And like, you know, like, you know, trans person, I can do it. Like, please give me your billions of dollars so I can, I can achieve this goal. But like we're talking about, you know, like the pension fund of California. We're talking about mega corporations, insurance companies, the kinds of things I can actually buy these, like, you know.

Now, this is where we get to one of the other problems, which is that these things are not insured. So what do you do in order to try to make it less risky? What do you get if you can't pay the loan back? And this is what's called collateral. I don't know. Swift punch in the nuts. Oh. No, they take your house, right?

Yeah. That's supposed to be the thing. So, okay, the way that, like, shadow banking loans tend to work is that they have collateral, right? So you give them something or, or it's either you give them something directly or it's like if you promise to give them the thing. Yeah. And giving it to them directly is, like, a repo market thing. We're not really going to get into those right now. that's also a kind of shadow bank,

but there's a problem, right? Which is, what if the thing that you're paying, you're paying as collateral, like what if your house becomes worthless? And what if, Molly? Then it's completely uninsured and there's no way to fix it because I don't even have anything to give you.

Now, Molly, what if, and this is purely hypothetical, it could never happen in the real world, Molly, but what if somehow, someone, someone decided to use the same house, house as collateral for multiple different securities. Well, that could never go wrong.

What if, Molly, they made a word for this that is so complicated I am not going to attempt to read it on the show. What if, Molly? What is it in German or something? No, it's like this, it's just like this. It's like the length of my head. It's like hyper, hypo, something bullshit. Like, I refuse to say it because it is just like a completely like finance goal bullshit term

they made up. So, but the point of. The point of collateral is that you can use it to pay off the loan if you default on the loan. And so that literally won't work more than once. Because once I eat the burger, once I eat the burger, it's gone. Yep. And this is one of the things that happened in 2008. I can't promise 10 guys my burger.

Now, Molly, here's the amazing thing here, right? Because the advantage for these companies, right? is like if you're the bank that has the mortgage, suddenly you can spin your mortgage off into like multiple securities that you can sell. Right, it's worth 10 times more and that's great for you. Yes. And comma, comma,

we haven't even, again, I just described the sister where these people are promising the same house to most of all people. This isn't even the extremely unfathomably reckless and greedy shit. No, it is. Oh, it is. But it's not the worst of it. Oh, good.

There's no shortcut for saving time, But saving money is simple. Just combine your car and home insurance with Bel Air Direct and save. Get a quote at bellairdirect.com. What's up, fam? I'm sports journalist Ari Chambers. Hey, what's up, y'all? It's your girl, Sam J.

And we're the host of everyone watches women's sports, a new podcast from Together and I Heart Women's Sports. Because let's be real. Women's sports is giving us way too much to talk about these days. So Kelsey Finler, she became the first female solo rower to go from California to Hawaii. My first thought is, like, what's up with the snacks?

Like, what are we eating? The highlights, the rivalries, the breakout stars, the moments that take over your entire timeline. And the conversations that start during the game and somehow keep going all week. Every week, we're breaking down the biggest stories across women's sports. Naomi Osaka showing out, she beat Sabalinka. Shout out to you, Naomi. You get the palm, Naomi. You get the palm for that.

Because we're not just interested in what happened. We're interested in why everyone's talking about it. Because everyone watches women's sports. Listen to everyone watches women's sports. On the IHeart Radio app, Apple Podcast, or wherever you get your podcast. Hey, Portlandia fans. Carrie Brownstein and Fred Armisen here. You know us, or rather you know them.

Tony and Candice, Nina and Lance, Spike, and yes, the chicken. We've played a lot of iconic characters over the years, but today we're showing up as ourselves to tell you about Podlandia, AEO rewatch, our brand new podcast. Each week, we'll revisit an episode of Portlandia from the very beginning. Breaking down the sketches, exploring the backstories of our most iconic characters, revisiting the Portland locations you know and love, and opening up about our creative process. How did any of this get made?

Why do we think that was a good idea? We're ready to talk about it. And we'll also be joined by the people who helped bring it all to life. Guest stars, collaborators, and friends, including director Jonathan Chrysall, the mayor himself, Kyle McLaughlin, legendary musician Amy Mann, and many more. Kyle is going for it here. You fully improvised, not just words, but a song, a melody. Well, I thought he was going to write.

I thought you're all going to write a song. I remember you thinking that. Listen to Podlandia. Ayo rewatch on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. My first guest is Paris Hilton, Shakira, Luke and Yerrin, Samira and Gracie. I'm so excited. On the bouncy bed. You have surprises?

Many surprises. Welcome to Sweet 305, where the group chat comes to life. What a f***. It's like a way of saying like, oh, my God, hello, my friend, hello, hermana. What a-up! Look, never I've evered to be able to talk to. Except with my kids.

My kids, if my amante. Oof. That's incredible. Yeah, the telenovela. You're the only person I know that loves Diallo Starburst. It's limited. There's no. There's someone that you'd like,

I'd like to collaborate with this person. This is Sweet 305. Listen to Sweet 305 with Lelepons as part of my Culture Podcast Network on the IHard Radio app, Apple Podcasts, or wherever you get your podcasts. Okay, so do you remember that quote from when I was giving the first definition of shadow banking, right? Like I gave this quote from the guy who invented the term where he called it, quote, the whole alphabet soup of leveraged up investment conduits vehicles and structures. Right.

So we've kind of talked about the conduits vehicles and structures, right? Those are all of the shadow banks that like make the things, right. I love the conduits vehicles and structures. Yeah, all the acronyms. But what does leveraged up mean? Oh. Now, okay. In this case, it means that a bunch of these banks have taken out a shit ton of like risky high

interest loans in order to buy more of these fucking mortgages because they think they can make more money off of it. So they took out, they took out loans to buy these unsecured securities. The regular ass banks were doing this. Yeah. They, they went into debt to buy more of these shitty mortgages. So they took out loans to buy what are essentially unsecured loans. Yep, because I thought it would make them more money. But there's no money involved. Oh, Molly, oh, Molly. It is about to get so much worse, right? So, I'm okay, so sticking with leveraging for a second, right?

You might have actually heard of something called a leveraged buyout. I have heard those words, and then I stop listening. Yeah, so here's the thing. Leveraged buyouts are something that actually happens in the real world that does fuck you directly, which is a whole bunch of companies that used to be like normalized companies, like, died because venture capital firms, you, by the way, are also shadow banks. did this, right? They came in, technically speaking, they did it through, like, risky bond purchases, but basically they did a bunch of high interest loans,

and then they go buy a company. And then they, like, strip it for parts. And then they try to raise the stock price of the company. Yeah, and then they trip for parts, sell everything and get out, right? That's what a leverage buyout is. These people are sort of doing kind of a version of that, but, like, they're taking on this debt in order to, like, buy fucking shitty underwater mortgages.

Because they look like they're making some. much money. They're taking on real debt to buy hypothetical debt. Oh, it's about to get so much worse. That doesn't seem like a good idea. It's not to get so much worse. So that's what like the leveraged part of that. I don't even know how you do that in burgers. I don't know. You're going into debt to like buy the promise of burgers in the future so you can sell those future burgers. Yeah, but burgers are real. The thing, we're not talking about a real thing. all. Well, technically, technically speaking somewhere at the bottom of this is mortgages. However, comma, we're about to get into a kind of asset where there isn't anything behind it.

And this is where the really, really, truly unhinged shit starts. It hasn't you? Which is that these companies figured out a way to bet on whether these mortgages were going to fail or not. That's so tight, Mia. I fucking love that. Oh, yeah. I love it. Yes.

Yep. Yeah. This, by the way, I can't emphasize enough how unhinged this is. The mechanism they're using to do this is called a credit default swap. Oh, I've heard that phrase. This was supposed to be how they did insurance. Their mechanism for doing insurance on all of these insane loans they were doing was originally like, okay, I'm going to, you're, I don't know, so you have a, you have a bank, right?

The bank has given out a risky loan. So this bank goes to another bank. They shouldn't do that. And they say, hey, if this person actually pays a loan back, I will pay you money. Okay. So the other bank is like taken again. here. Yeah. So the other bank that's giving out the loan, right, gets money if the loan goes under. So in theory, they're sort of like insured against the risk. They call it like hedging. So like so like,

so theoretically it's less bad from them because now even if the loan goes under, they still get money back from that other bank. So the other bank is just a bookie. Yeah. And the other bank is betting that they are going to get it. So then and if the loan does get paid, then that bank makes money. And this is legal for everyone to do? Yep. This is real banking or shadow bank? This is real bank. This is technically, actually, no, this is actually both. Both of you do this. Technically speaking, the instrument, like, like the actual like credit default swap or whatever is made by the shadow banks, but then they're brought by the regular banks. I'm starting to think that the bank search to the shadow banks and that all of this is just fake and bad. Like, so here's the thing. The thing

about these systems, right, is that like a lot of the original literature on it was considering them separate, but it's like, no, like, the regular banks are making their own shadow banks do these things. They're all involved in these assets. They're also investing in the shadow banks, which is the problem we're having right now. Right. It's like, it's the same guy. He just like turns his chair around at his desk and he's like, now I'm shadow bank Todd. Yeah, but well, sometimes it's that. Sometimes it legitimately is just other entities they work with. But yeah, but there's still, it's still the bank engaging. So it's like, oh, these are non-banking practices. Yeah, but the bank is doing it. Well, but here's the thing.

The important part for that, though, is that, like, the non-bank also can do this with other non-banks. Even better. Yeah, right? I just feel like once we're talking about shadow banking, like, the real bank should not be in the room. Like, go home, Wells Fargo. You don't belong here. You're drunk. No, but, like, they're funding all of this, right?

Like, if the real bank is involved with the shadow banking, that means, like, I can't opt out of being involved in this. Nope. Because they have my money. Yeah. You know what we were talking about that at the top that, like, so some of these, like, thank banks had to, like, stop their withdrawals. Oh yeah, one of those, by the way, was J.P. Morgan. But that's a real bank.

Yep. But they're involved in the shadow banking shit. So they're exposed to when they're like fucking $700 million loan to like a fucking, actually which one was the $700 million? I think a $700 million loan that went under was the one that was to a subprime auto loan company. That's a bad investment. Oh, yeah. It's so evil.

It's so evil. Why am I trusting all of my money that I have in this world? I'm letting this guy hold on to it who's obviously not good with fucking money. Well, because the FDIC is insuring it. Right, but it's like, why are you in charge of having the money? You obviously don't make great financial decisions because you invested $700 million since subprime auto loans.

So, Molly, this is the point where we need to bring debt the first 5,000 years back into this and emphasize the extent to which the financial class has always been deeply connected to the military and why it's always been deeply connected to war financing. I'm starting to realize that this is all very bad. It's very bad. It's all very bad. And this is to some extent why, right, like, part of what right-wing conspiracyism about

the financial system is, is that, like, these people are like, like, the right-wiggers, like, these people are, there's, like, a baseline level of anti-Semitism, like, in the U.S., right? Because it is a Christian society that is just, like, what fucking happens there. and these people are like, okay, we can channel all of the anger at like, oh my God, by fucking house got stolen by the bank because they were betting on the mortgage to fail. And- I still understand why that's legal.

Yeah. Well, all these right-wing conspiracies do is they look at that shit and they go, oh, well, it was the Jews. And it's like, but no, like, fuck off. Like, these are all- No, it was the bank. Yeah. And the other thing, and this is actually a really important thing that's not well understood here is that, like, the actual people who run these fucking banks, the people who

work at them are all fucking white Christian dipshits. This is like a really like persistent issue that everyone fucking has, which is that like, one of the great successes of anti-Semitism was like creating the image of the banker as a Jewish person. And no, they're not. The bank, like I fucking went to

school with these people. They're all a bunch of fucking white frat bros. They're fucking white Christian frat bros. Oh, right? You. University of Chicago. You have a degree in economics in the University of Chicago. Not frankly. I have an anthropology degree. Thank you very much. I took, I took a real degree. I was going to say, Mia. That's Not a fucking fake degree like the stupid econ bullshit.

I was to say, that's actually so evil to study economics. No, it's so hideous. You probably met some of the most evil people on this plane. I was just, like, in a dorm with them. Okay. So. But you saw them? I know all these people.

Yeah. And like, it is not, it is not a bunch of Jewish people. It's a bunch of Christian frat pros. Like, that's like the thing that's actually going on. There's actually a whole one day I will write behind the bastards episode about leverage buyouts and about how like there was like a Jewish guy who kind of like, like, like, did a lot of the inventing stuff,

but him breaking into the banking thing was like a whole thing because there was so much anti-Semitism because all of the banking sector was run by all of the fucking, like, weird dip shit, like CIA, like, like, wasp motherfuckers.

I mean, the Mormons have a huge hedge fund. Yep, yep, yep, yep. Yeah, so like the, what is it? I read an article about it. The hedge fund that the Mormons operate, like, they have their, like, best and brightest finance bros. Like, you know, Mormons do their two-year mission. if you're really good at finance, your mission,

you don't have to go to South America and tell people about the Book of Mormon. You can work at the hedge fund as a mission. It's a nightmare. I'm doing hedge funds for God. Yep, that's a shadow bank, by the way. Yep. It's great. So, okay, okay.

Coming back to this again, right? So we're talking about what causes 2008 and how did these shadow banks like do this? And the answer is that they've turned all of these mortgages into these like, fake securities they can trade, right? They package them all together, and they find out something really crucial, which is that if they throw a bunch of loans that they obviously know are going to fail together

and send them to a regulatory agency, and by the way, all of these, like, bonds that they're issuing have, like, grades based on the supposed to, like, how safe they are. And they figure out... Oh, I know about that. Yeah, and they figure out that they can send a bunch of really shitty bonds, but if they package enough shitty bonds together, they could send them to the regulators,

and the regulators would evaluate, some of them as being good, and then you could sell the good ones to your pension fund, because I thought it was a good bond, and it made money. That's just lying. And then, yes, and yes, and then, and then behind the scenes, right, all of these fucking companies, all these shadow banks, all the regular banks, they're all doing these, they're all doing these credit default swaps, right? So they're all betting on which ones of these are going to fail.

I'm putting all of these boys in timeout. Like, I'm going to put them in the bottom of a pit. It's so evil. And they start doing these, making these, like, even more complicated instruments, right? Where now what they're selling to you isn't just the package of mortgages. They're also selling you the credit default swaps with the loan. So theoretically what's happening is like they've created an instrument that regardless of what happens to the loan you make money.

That's not how anything works? No, it's bullshit. It's so obviously bullshit. I made up this fake thing where no matter what happens I get rich. That's cool. I would love to do that. Yeah. And nobody was like, well, I mean, a couple of some people were, but like, people didn't just be like, wait, hold on.

No, obviously you can't make an asset that makes money regardless of whether the thing fails or not. I invented a money machine. Like, that's fucking ridiculous. And then eventually, yeah, it was like, no, they ran out of fucking mortgages. You know, one of the ways that the blame for this was deflected onto regular people was that they blamed the banks or like they blamed regular people for like not being able to pay the mortgages. But the thing is, by the time you get to the point where you're like packaging all the, you're, you're, betting on the mortgages, right? If you're a bank, even if you're the regular bank, you don't make money off of like someone paying their mortgage back. You make money on betting on the mortgages.

So you're incentivized to just keep giving out loans you know won't happen because you can sell those loans off of some other dip shit and then you can bet on those loans that they're going to fail and you can make money and that's how you make your money. Because you're not a bank anymore. You're a bookie who's cheating. Yep. I don't think that's good, Mia. No, this was the entire fucking financial system. And we just let these people stay in power. And I'm just supposed to just continue living my life like this? I don't know.

Looking at this and then learning that all of these people got fucking bailed up by the government and none of them went to prison. Do they know they're cheating liars who are faking and making it up? Or are they like so high on their own supply? They're like, no, bro, no, but this is totally going to work. It's totally going to work. Well, here's the thing. Some of them know and some of them don't. Because some of them believe that this is cool.

Yeah. Like some of them legitimately thought that this was just going to work forever. Like do they believe their negative money backed by other fake money, backed by the idea of promises of fake money? They think that's money? Yeah. Yep. I thought it was going to work. It's not.

It's not. Nope. And it turned out to not be any fucking money. And it blew up again, like entire countries, countries were buying these. They went bankrupt. So like this is. less real than a bored ape NFT. And that's really saying something.

It's astonishing. Because at least I can look at least I can look at the picture of the monkey. I can't look at this. No, like you can't look at the bet you're making on whether on whether monkey go down. Like it's like like all my apes gone. Yeah. But it's depression because the entire world is just this now. It's the shit the banks we're doing where you're betting on whether the mortgage

going to fail. But now it's your betting on whether like what day we're going to drop a bomb on a run. Like nothing is real and everything is gambling. Yeah. Yeah. And this is, you know, what I would call a sort of terminal crisis stage of capitalism where like... Because everything is so divorced from any material reality, from any good or service. Like, there is a limit to which you can run an entire economy that is purely based on gambling. Like, there's just, there's a limit and we're going to hit it really soon. That's got, that's going to break, right? Yeah, yeah. It's going to break. It's going to break spectacularly. However, comma, I do have good news for you. I do. I have good news. You now actually understand what non-bank financial intermediation is.

No, I don't. I'm going to walk you through it. You actually do. So I'm going to quote the IMF's definition of non-bank financial intermediation. Quote, all entities outside the regulated banking system that perform the core banking functions credit intermediation. that is taking money from savers and letting it to borrowers. The four key aspects of intermediation are maturity transformation. We know this one. Right. This is what the bank does.

The loan gets older. Yeah, yeah. And then it gets paid back over time. Yeah. Well, it's, you, you turn your short-term thing into a long-term investment. Or you do the opposite. Opposites not good. They're both kind of a disaster, but like, yeah, yeah.

The opposite is kind of how we got into this mess. there's liquidity transformation, which we know this too. It's turning money into a thing that's not money. Yeah, or turning not money into a thing you can buy burger with. Okay, yeah. We got this. Leverage. We also know this, which is you go into a bunch of debt to buy something else.

And then there's credit risk transfer, which we know that one too. It's the betting market. We're supposedly swapping the risk by both of you two are now betting on what. whether this thing is going to fail. So it sounds like even just like regular banking is kind of just gambling now. Yep. Yep. Yep. And it's fun too. So this is a thing that used to be talked about more and isn't now. But like most of like the world's corporations are also basically this now. Like, and this has been a thing for a while, but it's like the auto manufacturers don't make

their money off of cars. I mean, they sort of do. They make some money off cars. Or like most of what they make their money off of is like the Ford Finance Company, which is like the auto loans thing. Oh. And then the auto loans thing trades a bunch of like does all of this other financial bullshit to make money. So like I don't think that's a good idea. That's what capitalism is. So everything, everything is fully reliant on this like stupid gambling bullshit.

Emperors wearing no clothes economy. Yep. And if anybody points out that none of this is connected to a material reality, everything falls apart. Well, here's the thing. The thing that stops everything for falling apart is that the one thing you can do with your money is turn it into gun. Now I'm listening. And that's what stops it for falling apart, right? Because this is also a sort of graverism, but it's like behind every like bank is a man with a gun. Because the reason that this money is even sort of real is that the bank can like, like the police will come get you, right? Like men with guns will appear and coerce you to pay shit. Right. But what if? What if instead of burger, we bought gun? You know, like, this is what is broadly referred to as the social revolution. It is broadly considered a negative by the financial sector. It is broadly considered a positive by everyone the fuck else.

That's not true. It's not considered a positive by, like, I guess, the people who own regular businesses. And this is, like, the shit that, like, you know, it was kind of less unhinged back then. But, like, if you go read the people who were, like, doing this shit in, like, the early 1900s, If you read their writing, it's all them being like, oh, yeah, no, by the way, like, a bunch of banks just, like, turned the entire Ottoman Empire into, like, a debt peon, and now their entire economy is just dedicated to paying off these fucking loans. And this is, like, hideously fucking evil. Like, they're all complaining about the same shit. And the important lesson we learned from that.

The important lesson we learned from that was to do it more. More. Oh, yeah, yeah. Yeah. To invent increasingly more complicated ways of doing that. Yeah, and like, and this is why the term third world is a slur. Because instead of being a political movement, because the countries in the Politica movement that was called the Third World Movement, all of their economies got fucking

annihilated because they had these like loans whose interest rate could change, and the U.S. jacked up all the interest rates. And so suddenly their loans were like, like, the amount you had to like pay on the loans, it went from like 20% or something to like 50 or 100 or some shit. And, you know, and like in these countries have not. recovered. Like, Nigeria has never really economically recovered from the shit that happened to them of this. This is why a whole bunch of Latin America is like this too. Like, it's like, why there's so much sort of like riding systemic poverty is that the economies were entirely transformed

into machines to like pay back these fucking debts taken out by these dictators. This is the whole fucking economy now. And, you know, there's other shadow banks that do other kind of completely unhinged shit, right? And I've been focusing this week on like specifically the kind that blew up the economy in 2008. But there's another kind that's like blowing up the economy right now, which is called private credit, which is, I mentioned this briefly earlier, but private credit is when these like unregulated companies that are not banks give out unregulated loans with unknown terms to other companies. And then those loans go to shit. And there's a whole bunch of ways that can blow up, including, by the way, these companies are funding a bunch of the AI bubble.

Oh, and that's a great investment. It's great. You know, because much, much like a mortgage, there's a real physical thing, like a house involved, right? It's not just vibes. Oh, yeah. Oh, Molly, Molly, those motherfuckers, I'm going to talk about this a bit. I might have Ed Ditron on for this part of it, too, just because, like, Ed does this all the time.

But, like, those motherfuckers out there selling securities that are backed by fucking graphics cards? Like, at least the more, I can't believe I'm fucking saying this. But, like, at least the mortgage-backed securities, like, there was a house you could steal to get your money back. graphics cards, Molly. All my apes are gone.

My graphics cards. All my apes are gone. I was like, there's other ones that I'm like, it's, it's so bad. It's just, ha. But that's for another time because it is late as fuck and we are out of here. Molly, thank you, thank you for sitting and enduring an hour of you knowing what a shadow bank is now. I almost know what a bank is.

I'm still working on the rest of it. I think I'm getting closer. I believe in you. I think we've made real progress today. I don't know. Now you can kind of understand what's going on when this thing sector explodes again in like two weeks. You'll have to explain it to me again then.

I will be happy to. It Could Happen here is a production of Cool Zone Media. For more podcasts from Cool Zone Media, visit our website, coolzonemedia.com, or check us out on the IHeart Radio app, Apple Podcasts, or wherever you listen to podcasts. You can now find sources for it could have happen here listed directly in episode descriptions. Thanks for listening.

Hey, Portlandia fans. Carrie Brownstein and Fred Armisen here. The Dream of the 90s is alive in podcast form. We're launching Podlandia, A.O. rewatch, our brand new podcast where we revisit every episode of Portlandia together, breaking down sketches, going deep on our iconic characters, and pulling back the curtain on how it all got made. And we'll also be joined by the people who helped bring it all to life. Guest stars, collaborators, and friends, including director Jonathan Chrysall, the mayor himself, Kyle McLaughlin, legendary musician Amy Mann, and many more. Kyle is going for it here.

You fully improvised, not just words, but a song. Well, I thought you were all going to write a song. I remember you thinking that. Listen to Podlandia. A.O. Rewatch on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. What's up, fam? I'm sports journalist Ari Chambers. Hey, what's up, y'all? It's your girl, Sam J.

And we're the host of everyone watches women's sports, New podcasts from Together in I Heart Women's Sports. We're breaking down the biggest headlines. Naomi Osaka, showing out. Shoutouts to you, Naomi. The viral moments. I've been obsessed with Kashan Rocks. Boxing journey.

She looks good. Her combos are swift. And the stories everyone's talking about across women's sports. Because everyone watches women's sports. Listen to everyone watches women's sports. On the IHeart Radio app. Apple Podcast or wherever you get your podcast. This is Chelsea Handler from Dear Chelsea.

Every week, the news gets worse. The world gets crazier. And Yamanika is here to tell who. Ever's responsible, you're the problem. Do you know I just found out who Sidney Sweeney was? If he got a bunch of women, then I should have a bunch of men. Do better or do less so I don't have to do so much. I'm Yamanika, and I'm out.

Listen to You're the Problem with Yamanika on the I Heart Radio app, Apple Podcast, or wherever you get your podcast. I'm Nick Tuturo. You probably know me from NYPD Blue, the longest yard, or Spike Least Black Klansman. And on my new podcast, delivering happen. with Nick Totoro, I deliver pizza to a new guest. I've shared a slice with everyone from Seth Rollins.

What are you doing, my belt? To Bill Burr. I don't think I've ever met somebody so exactly out of their mind as I am. And now, we even have more great guests coming up, including the great John Tuturo. It's called Happiness, delivering happiness. And many, many more. Open your free

High Heart Radio app. Search Delivering Happiness with Nick Tutro. And listen now. This is an I-Heart podcast. Guaranteed human