interesting article on the crisis in economic theory by Paul Krugman. In this quote here he’s talking in general terms, but the moment I read it I saw Anglo Irish Bank:
In retrospect, it shouldn’t have been hard to notice the rise of shadow banking, banking that is carried out by non-depository institutions such as investment banks financing themselves through repo. And it shouldn’t have been hard to realize that an institution using overnight borrowing to invest in longer-term and somewhat illiquid assets was inherently vulnerable to something functionally equivalent to a classic bank run – and, furthermore, that the institutions doing this were neither backed by deposit insurance nor effectively regulated.
I think it really has to be pointed out that the above was essentially Anglo’s business model. It was the failure of that model, and the subsequent bail-out of the shadow banking system in Ireland to facilitate/hide the bailout of Anglo’s business model, that destroyed a nation.
The full article is here: