Explain the shadow banking system

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Your uncle, who works for a medium sized manufacturing firm, has put forth theargument that there is no such thing as contagion or the threat of systemic failure. Usingthe case of the failures of Merrill Lynch, Lehman Brothers, and AIG on the sameweekend in September 2008 explain contagion, flight to quality and systemic failure. Besure to discuss asymmetric information and the lemons problem in the context ofcontagion and the risk of systemic failure, and the effects of contagion and the risk ofsystemic failure on the global short and long term debt markets (i.e., the money andcapital markets) and the global economy.

• In your answer please explain the “shadow banking system,” and why the FederalReserve and other regulatory agencies rescued an “unregulated” insurancecompany and investment bank. In addition, be sure to discuss the historicalregulatory paradigm for “commercial banks (depository financial institutions)”and the impact of the Gramm-Leach-Bliley Financial Services Modernization Actof 1999 on the financial services industry and taxpayers.

Reference no: EM131558430

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