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Bill Gross : Beware our shadow banking system
Submitted by admin on Fri, 11/30/2007 - 11:40
Bill Gross, founder and chief investment officer of Pimco says "We have a secret banking system built on derivatives and untouched by regulation, says Pimco's Bill Gross. Here's how to protect your pocketbook. The tangled web of subprimes has claimed more than its share of victims in recent months: homeowners by the hundreds of thousands, to be sure, but also those who created, packaged, insured, distributed, and ultimately bought what should have been labeled "junk mortgages" but which by a masterstroke of marketing genius received a more respectable imprimatur.
"Skim milk masquerades as cream," warned Gilbert and Sullivan over a century ago, and sure enough, today's subprimes, packaged into financial conduits with monikers such as SIVs and CDOs, pretended to be AAA-rated cubes of butter.
What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.
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