[CROSSTALK] >> Next thing that I realized I had not really been adequately aware of, is to appreciate that the way the shadow banking system was essentially tapping a global funding market. That the, that the dollar funding markets are global. And they are premature as a matter of fact, and they've been tested many times before. And I'm showing here the up, here use of the dollar funding market, to finance development lending in Korea. Okay? That Korea, Korean banks, this private bank, is, is borrowing short term, okay, from some global bank, Deutsche Bank or something like that, okay? Which is, which is taking deposits or, or issuing short term money market, things that are held by a dollar bank, maybe this is the money market mutual fund or something here, okay? So there are these global funding markets and they're mostly dollar funding markets, okay, because the dollar is the world reserve currency. And if you want to spend more than your domestic savings in order to, in order to develop your economy, you can tap those markets. an, an, an, and then make those loans, and, and, and develop your economy. In doing so, you need some, you're taking for exchange risk. So I'm showing this, this, private bank. hedging this ex, foreign exchange risk, because you're lending in, in, in Korean currency, and you're borrowing in dollars. So that's where the risk is, and then you hedge this with maybe a foreign exchange swap, or by holding dollar reserves, maybe it's not you doing that, maybe it's your central bank that's doing that, and they're giving you the counterparty, but the point is, there is foreign exchange risk there, that has to be borne by somebody. And we know how this game works out, because we've seen the Asian financial crisis. Okay, that when, when the money stops when the money stops there, there's going to be a banking crisis. Probably there's going to be a currency crisis too, because of all of these foreign exchange swaps. So the whole thing comes unraveled, we know about this. We've experienced this. Okay. And, and develop some safeguards and some knowledge about how to deal with crises like this. It didn't turn out so well, necessarily for the tigers, but we learned something from that. Now, what I, the important for today, is to say, well what was shadow banking? Shadow banking was tapping exactly that funding system. But for dollar, lend, loans. So it seemed like, wow. You know, the big problem with the dollar funding system is this fx risk. And we don't have any fx risk, you know, because you're, you're borrowing dollars and you're lending in dollars. There's no foreign exchange risk here, so it seems great. Okay, there's other stuff, yeah, there's credit risk, I suppose, but there was credit risk up here too, you know, Ko, Korean backed businesses can, can default, subprime mortgages can default. and there's duration risk, there's other kind of risk. but there's not effects risk, which is what led to the, the Asian, the Asian financial crisis. so we're tapping the, and this is the point. The shadow banking system was tapping a mature global funding system. Okay? For a new purpose, okay. So, in, in a way, the, the and the risk transfer piece, the CDS piece. That is immature. Okay, that is new. They're inventing that. Okay? On the fly. So the, there's, there's, it's very easy to borrow money because this system exists. Okay, it's not so easy to transfer risk. Okay? Because your inventing it on the fly. It's new. Okay? Understanding that helps you now understand why the crisis of the shadow banking system was a global crisis. It was a crisis because it, it ultimate, it immediately affected the global funding system. You know, it's the global money market that got affected, and I've shown you this graph before, this is the, the, spread between Eurodollar. a libor, Eurodollar interest rates and Fed, term Fed fund rates domestically. which should be the same for the same term more or less. You would expect. And they blew out to 100 basis points before Barra Sterns and then 300 or more after Lehman and AIG. You can see in this intermediate period, it looks like the Fed was stabilizing that that spread but nowhere near zero. Okay? This is one, one month, the one month spread and the three month spread So, it was a global crisis and it was a global crisis, be, because the shadow banking system was in Europe. Okay? And so it's funded globally through the Eurodollar market. but that's not, but, but inevitably it was in Europe, because the global funding system is, is, global. it's not just in Europe. It's also in Japan. And, in fact, it affected all currencies, all major money markets. So that is another element to appreciate, that we had a mature funding system and an immature risk transfer system.