Mike at Rortybomb:
Atlantic Business and the Shadow Banks, Rortybomb: So Mark Thoma wrote a piece saying “The development of the shadow banking system is important because the troubles we are seeing today are not the result of problems in the traditional, regulated sector of the financial industry. The problems began in the unregulated shadow banking system.” The Atlantic Business Dr. Manhattan responded:
the systemic breakdowns we have been experiencing over the past 18 months have been caused by problems at the major banks (even the former investment-only banks which weren’t regulated by the Fed or FDIC cannot be called part of the “shadow banking system”), AIG (regulated by the state insurance commissioners, even if they’d rather you didn’t remember) and let’s not forget Fannie and Freddie, which had their own regulator.
Brad Delong declares [the Atlantic's reply] a “crash and burn” with some fun Watchmen allusions.
When people mention “The Unregulated Shadow Banking System” (TUSBS) they are often talking about different things and thus past each other, so let’s refocus. In general, I hear three things people invoke when they mention TUSBS. ...
I don’t feel that Thoma’s critics are getting his point, much less providing a counter-narrative. Now granted, there were government agents hanging around all these firms. So correct me if I’m wrong, there were no mechanism to handle this liquidity-backstop-for-regulation prior to the crisis. And that’s a problem that we all need to deal with.
There's quite a bit more in his post, including a substantive argument to support his conclusion.