The Financial Crisis Inquiry Commission has just released a preliminary staff report entitled “Shadow Banking and the Financial Crisis.” The underlying view of the report is that 1) the shadow banking system is like the traditional banking system – leveraging its own equity to fund long-term investments with short-term borrowing, and 2) problem that lead to the Great Recession and bailouts was a lack of a regulator/lender-of-last-resort of the types that covered the traditional banking sector.
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