I must object to the explanation about where the money comes from to fund the shadow banking system.

Sorry, but it comes from the same place that all the money for lending came from before the 70s, from you and I and the small businesses who put their cash in insured banks.

I am old enough to remember the debate about the moral hazard of allowing people like you and I to deposit our money in the emerging shadow banking system. The debate was whether individuals could open demand savings and checking accounts in the shadow bank called Primary Reserve Fund. The fear in the 60s was this would lead to a hollowing out of the source of funds for small banks and ultimately a return to the bank runs which would require the government to step in and bailout the shadow banks by providing deposit insurance to prevent bank runs.

In 2008, depositors were making runs on the shadow banks, and by authority of TARP, the FDIC and Fed bailout the shadow banks to prevent all the shadow deposit banks from going bankrupt and to prevent depositors from losing access to their money.

The predictions from 1968 came true 40 years later.

Lehman, Bear, et al, got their money from the shadow banks in the same interbank lending process that the Federal Reserve member banks engage in where they rush to meet their reserve requirements at the end of the day by interbank borrowing so the banks don't need to borrow from the Fed.

Moral hazard: just as predicted in the 60s, the Fed ended up bailing out the shadow banks. Even in bankruptcy, the Fed ended up providing the debtor in possession lending it provides to regulated member banks when the FDIC resolution authority takes them over because bankruptcy liquidation requires a bankrupt bank to operated and have some liquidity.

Again, where does the money comes from for shadow banking? From people like you and me who have mutual funds that are either in money market funds, or bonds, or debt backed stock.

In the 50s and 60s, we would have put our money in banks and savings and loans, or for long term safe savings, into utility bonds and utility shares that were heavily regulated and thus assured us of safe market rates of return, or in US government Savings Bonds or other Treasuries.

The shadow banking system replaced that, but in the end, the government provides deposit insurance and Federal Reserve protection against failure from bank runs be people like you and me.

So what happens to the individual loans if they are bundled, but then no investors want to buy them and "Nationwide" fails? Are they just sold at a deep discount?

This series and Marketplace in general are an outstanding resource. Always done in clear and concise, and entertaining terms. Keep up the great work! Sincerely, Jim Symons San Diego

Mr. Paddy Hirsch;
Thanks for your clear explantion and very excellent choices of metaphors and other ways of relating complex financial terms/products to simpler concepts.
i try to watch a few each week. Is there any chance of either compiling these into a DVD format or even
paperback with the white board drawings. as there are times my internet connection has trouble displaying the video - the voice gets out of synch to the pictures like an old godzilla or hokey martial arts movie. Thanks again for taking the time to research and present these topics it really is hard to find people who are VERY GOOD at teaching such things - in science my old favorite is still the works of Issac Asimov.