What do the Calabrian organised crime syndicate ‘Ndrangheta, Hertz Global Holdings Inc, China’s Sichuan Trust, and the US Federal Reserve have in common? They are all deeply entangled in a financial system that has turned credit intermediation into a debt mint that produces assets to enrich investors but leaves households, firms, and governments struggling with unsustainable liabilities.

Investors have always been hungry for safety and yield. Logic suggests that you cannot have both, but that was before the age of structured finance and shadow banking. With the right legal coding strategy, simple payment obligations can be turned into liquid assets for investors.

Minting debt has little to do with conventional credit intermediation. It is all about investors and fee-charging intermediaries, not about debtors. They and their assets only provide the input to sustain the production line. And whenever it breaks down, which it does when the quality of inputs deteriorates or external factors (like a pandemic) disturb its operation, central banks stand ready to absorb the risk and recycle the financial junk.

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