There are influences in the economy above and beyond the basics of traditional economic theory. These influences consist of the world of shadow banking.

In the case of knowing about the world of shadow banking, sadly, ignorance is not bliss

The author was fortunate to have been in banking in the mid 90s. That particular banking group was very concerned. It was very clear that swaps and derivatives could cause a financial meltdown. The underlying concern was that greed alone would drive the industry into wilder and wilder financial instruments with no underlying value. It did come to pass. As early as July 2007 the auction system for these kinds of instruments started to fail. Financial institutions backed away from taking on these “same as cash” instruments.

The bigger fool theory was in play. Methodically, institutions such as Wachovia Securities, Merrill Lynch, and others pushed hundreds 0f millions of dollars of these into the hands of individuals, small business, and even companies like Earthlink.

Who created these? Companies like Blackrock and Nuveen. The market…