Sitting in his office at Miami's Esserman Nissan, the second-largest Nissan dealership in the United States, Simon Robles is at the epicentre of all the major economic shocks battering the country.
The Florida real estate market is about as bad as it gets, with two cities in the top 10 in the United States last year for foreclosure rates, and Miami home prices are down 45 per cent in the past year.
The state's unemployment rate has surged to 8.6 per cent, doubling in less than 18 months. Even the ritziest enclaves of Miami, not far from Esserman's lot in the north end of town, are feeling the pain.
As finance manager for the dealership, which expects to sell 3,600 cars in a year, Mr. Robles spends his days trying to line up car loans for would-be buyers. It's something the soft-spoken man admits is becoming increasingly difficult.
"Traffic is definitely down, but credit is a problem, too," said Mr. Robles, lamenting that an inability to get financing now accounts for about 20 per cent of his dealership's lost sales.
The problem for Mr. Robles and his customers lies as much in the plush offices of New York and London hedge funds as it does with troubled U.S. banks or the abandoned homes and empty condos that are savaging the economy in his area.
Many of the loans that Mr. Robles once made were funded not by traditional banks, but by hedge funds and other investors through what's become known as the "shadow banking system."
That system has fallen apart and the lenders that are left are pickier, at the same time as his customers are in worse shape.
"They [lenders]want a higher credit score and the customer is usually walking in with a lower credit score," Mr. Robles said.
That conundrum epitomizes the dilemma facing policy makers as they try to revamp the financial system and restart the global economy.
The shutdown of the shadow banking system, on the surface, seems to be a good thing. It was the engine of unchecked lending to consumers who couldn't afford it that led the economy to blow up. Yet, without it, so much credit - more than $1-trillion (U.S.) - has disappeared from the U.S. economy in areas like auto lending and consumer loans that a recovery seems uncertain.
That's forced the Obama administration, Treasury Secretary Tim Geithner and Federal Reserve Board chairman Ben Bernanke to take a big gamble: Throwing as much as $1-trillion at a program called the Term Asset-Backed Securities Loan Facility (TALF) to restart the shadow system with government backing.
Canada is working on its own response, planning a $12-billion (Canadian) program to restart the shadow system here for auto lending by backing purchases of auto loans.
They are moves fraught with risk. Does it make sense to rev up the doomsday machine of lending that already brought the global economy to the brink? Have policy makers put in place the controls to keep it from spinning out of control?
Even more fundamentally, does it make sense to try to restart the economy by pushing more lending to consumers like Mr. Robles' customers, many of whom are already sinking under debt loads that look increasingly unaffordable as jobs disappear in the global recession?
It will be a hot topic at the coming G20 meeting, given that support for the idea is hardly unanimous. U.K. Prime Minister Gordon Brown has suggested that a better idea might be just to outlaw the system entirely.
The stakes are high. The effect of every car that Mr. Robles and his fellow car dealers in the U.S., Canada and around the world don't sell because of the disappearance of financing from the shadow banking system ripples through the global economy - hurting auto makers, parts manufacturers and the commodity producers, many Canadian, that make the iron and steel that go into the cars.
The same dynamic is at play in other areas of the economy financed by the now-stalled shadow banking system, primarily the mortgage business and the credit card world. Higher returns The growth of the shadow banking system took off in the past decade thanks to complicated global forces. With interest rates on safe investments such as government bonds at rock-bottom levels, many investors sought higher returns.
In response, investment bankers created new types of bonds that would pay higher rates by bundling together consumer loans and mortgages.
The idea was that as consumers paid their debts, the money would flow to the investors.
The process was known as securitization, and it essentially made traditional banks redundant and allowed new types of lenders to spring up, offering mortgages, credit cards, car loans and lines of credit. It also created a rich stream of fees for the bankers.
Car companies like Nissan could package up thousands of auto loans into bonds, then sell them directly to willing buyers at hedge funds and mutual funds.
Growth was fast, and unhindered by regulators whose mandates were to look at traditional banks. The shadow system grew up inside a black hole where few rules applied.
At its peak, the shadow banking system rivalled the traditional banking system in size. Because of its unregulated, sprawling nature, figures for the shadow network of lenders are hard to come by, but the growth was unprecedented.
By early 2007, there was about $10.5-trillion (U.S.) of assets in hedge funds, structured investment vehicles, on the balance sheets of investment banks and in other areas of the shadow system, according to the Federal Reserve. That made the system bigger than the entire traditional banking system in the U.S.
Those days are gone. The hedge funds, investment banks and SIVs that made the loans that fuelled so much consumer spending have vastly shrunk in size in the past year's market rout, with many failing outright, and those that remain are leery of investing in new loans given the economic troubles.
There were many skeptics, including Canada's own Eric Sprott, who railed against the perils of the shadow banking system before the bust, yet many mainstream economists actually believed it was a good thing.
The system was viewed, including by the International Monetary Fund, as something that made the financial world safer. The system spread risk beyond banks, to investors, reducing the risks of bank failures. At least, that was the conventional wisdom.
But in the carnage of the credit meltdown, that has proven a tragically flawed thesis. It turned out that hedge funds and other non-bank lenders lent out far more than they could prudently afford to, and often to people who couldn't pay. As soon as some of those loans fell in value, the funds and investment banks that made the loans became insolvent.
Throughout 2007 and 2008, one hedge fund after another failed and investment banks like Bear Stearns Cos. followed, and the system began to shut down.
The plunge in credit was precipitous. Investors bought $900-billion (U.S.) of securities backed by car loans and other consumer and small-business loans in 2006. By 2008, that had plunged to $150-billion. And in the first three months of 2009, before TALF, investors were willing to buy a measly $2-billion.
In Canada, the disappearance of the market for riskier mortgage-backed bonds means that companies like Xceed Mortgage Corp. are unable to renew mortgages for many customers. That could leave as many as 25,000 borrowers unable to renew their home loans.
Car loans have also been hard hit here.
"We have seen a significant collapse in the ability of our potential customers to obtain credit to purchase vehicles," Pat Priestner, head of dealership operator AutoCanada Income Fund, told investors last week after reporting a 7.3 per cent decline in fourth-quarter sales.
Banks around the globe are unable and unwilling to pick up all the slack, with balance sheets weakened by their own exposure to toxic debt.
The U.S. government's answer is the controversial TALF program. Washington is willing to make loans to hedge funds and other investors to enable them to buy bonds backed by assets such as car loans. Canada's government promised its $12-billion (Canadian) backup plan in the latest budget, but has yet to lay out the rules.
The U.S. program kicked off this month with investors asking for $4.7-billion (U.S.) of funds to buy securities in the first round, enough for about half of the roughly $8-billion of TALF-eligible securities that went on sale.
Nissan was one of the first companies to take advantage of TALF, selling $1.3-billion of bonds that are eligible for the program, and dealers say it's working.
Mike D'Amato, owner of Nissan of North Olmstead, a dealership near Cleveland, said the money from those bonds has helped to keep his business steady.
"It, without a doubt, helped them from a cash perspective to loan more money, there's no question about that," said Mr. D'Amato, who is a member of the dealer advisory board for the company. "Without that money, we probably wouldn't be in the position to do some of the leasing we're doing." Overseeing the lenders Dealers may be happy, but critics say TALF was unveiled so quickly that it lacks the safeguards necessary to keep the machine from overheating again.
"I guarantee you we're going to see a repeat of that problem because we haven't put any brakes on it. So I highly recommend we put brakes on it," said Janet Tavakoli, a securitization expert who worked 22 years on Wall Street before starting her own consulting business.
The key is to regulate anybody who lends as a bank, no matter what they call themselves, which should lead to tougher lending standards and force all lenders to hold more capital to guard against bad loans. That's the principle underpinning the massive reconfiguration of U.S. financial regulation that Mr. Geithner proposed this week.
"Financial products and institutions should be regulated for the economic function they provide and the risks they present, not the legal form they take," Mr. Geithner said Thursday. "We can't allow institutions to cherry-pick among competing regulators, and shift risk to where it faces the lowest standards and constraints."
The problem now though is how to keep institutions from cherry-picking among jurisdictions, moving to offshore tax and regulation havens to avoid tighter rules such as Mr. Geithner is proposing.
That's where next weekend's G20 meetings come in: The next key is to create an international movement to bring the shadow banking system into the regulatory light.
"At the end, the shadow banking system will have to come out of the shadows," said David Dodge, the former head of Canada's central bank.
He said regulators need to require standardization of lending and other products, and better underwriting standards.
"Because obviously the big change that's going to come is that you're not going to have a system where you can ignore the credit quality of the underlying assets," he said.
But even if the system can be restarted and made safer, the fundamental economic questions remain. After all, it was reckless borrowing that got the U.S. in trouble, and now that many borrowers are in even worse shape than during the boom, shouldn't lending actually be scaled back?
"It's the wrong way to go if we think that encouraging people to borrow more and leverage up more and to spend more will get us out of this mess, because that's what got us into this mess in the first place," Ms. Tavakoli said.
It's far from clear that people who are struggling with the recession are even willing to step up to buy new cars and consumer goods, no matter what the governments in Canada and the U.S. do to try to get people borrowing and spending again.
"The demand for credit is way down," said Bill Dunkelberg, chief economist for the U.S. National Federation of Independent Business. Mr. Dunkelberg is also chairman of a small community bank in New Jersey, where he said he sees a big decline in loan applications. Because of that, he said, the Fed and the Treasury may be "pushing on a string" with TALF.
In Miami and in the suburbs of Cleveland, Mr. Robles and Mr. D'Amato both say they don't pay much attention to the debate swirling around TALF and the shadow banking system in economic and political circles. They just wants to sell cars, and if TALF helps, great.
"It's too crazy," Mr. Robles said. "We don't focus too much on the outside. We just concentrate on our business."
With a file from reporter Heather Scoffield