The Whole Alphabet Soup

This chapter begins with a micro-history of the Great Crash of 2007–8. It describes the instruments, transactions, size, and growth of the shadow banking system in the years before the crash. Heralded with widespread affirmation by public decision makers and intellectuals, the new financial architecture received only occasional criticism from within. The chapter describes the construction of the financial system—both the history of its development and how the networks and connections looked on the eve of the crisis. Despite the dangerous warning signs offered by a series of regional crises on the periphery, advocates plowed ahead with certainty that the market could not be wrong. When the crash came, many experts broke briefly with orthodoxy, but most have returned rapidly to their faith in financial markets. A more technical appendix, “The Realm of Shadow Finance: How and How Much” details the shadow banking system.