That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade – a web of extraordinarily complex securities and wagers that has made the world’s financial system so opaque and entangled that even many experts confess that they no longer understand how it works.
Unlike the building blocks of the conventional economy – factories and firms, widgets and workers, stocks and bonds – these new financial arrangements are difficult to value, much less analyze. The money caught up in this web is now many times larger than the world’s gross domestic product, and much of it exists outside the purview of regulators.
Some of these new-generation investments have been in the news, such as the securities implicated in the mortgage crisis that is still shaking the housing market. Others, involving auto loans, credit card debt, and corporate debt, are lurking in the shadows.
The scale and complexity of these new investments means that they don’t just defy traditional economic rules, they may change the rules. So much of the world’s capital is now tied up in this shadow economy that the traditional tools for fixing an economic downturn – moves that have averted serious disasters in the recent past – may not work as expected.
Of course some of us are still under the impression that we can control capital formation outside of a formal regulatory system. When has that ever worked?
Capacity: 40 passengers + 15 crew members
Volume: 520.000 m3
Dimensions: L 210m x W 82m x H 52 m
First deck (500 m2) : Restaurant, lounge, library, fitness
Second deck (600 m2) : 20 rooms, terraces, spa, bar
Range : 5000 km / 72 h.
Maximum speed: 170 km/h
Cruising speed: 130 km/h
But will humanity accept this pace? We all want to be counted among the indolent rent-seekers, but to achieve that these days requires the opposite attitude.