Collateral management - Wikipedia, the free encyclopedia

Collateral management - Wikipedia, the free encyclopedia

82 percent of collateral is cash and government securities. There is a shortage of good collateral. This collateral is used to back traders, runs on banks, speculation, interbank lending, etc.

This collateral is the currency of the financial system. Unfortunately, profits based off this collateral are in speculation that hurts main street. That is the problem. There is no real investment by the TBTF banks into the real economy!

So, on the one hand, with trillions in derivatives, collateral shortages become problematic, and on the other hand, having good collateral hurts main street badly as commodity prices soar.

Once banks run out of good collateral, they use less good collateral, like mortgage backed securities, stocks, gold, and corporate bonds. Then if those lose value, the banking system freezes up and interbank lending is curtailed. Speculative commodities futures drop in value. 

Main street gets a reprieve from high prices but you could lose your job.Your house price goes in the toilet as well.  As long as your house value is tied to bankers using bad collateral in the absence of good collateral, it isn't very stable is it?

Great system isn't it? NOT.We know that bad collateral deposited in the money market shadow banking system resulted in the housing crash of 2008. We know that bad second mortgages caused the contagion (banks not trusting each other) that started the Great Depression.

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