Moon Kil Woong

The $700 Billion Disconnect: Lost in Translation

The main problem here is that the problem is not constrained to home loans or their derivatives but that banks can't handle an economic downturn in any sector simply because they are overly leveraged and an economic downturn shrinks the money multiplier. If you are leveraged 20 30 or 40 times even a 5% decline will wipe you out.

$700 billion dollars to these bankers is like M&Ms when they are starving for a meal. This will no nothing but make them happy for a half hour until the sugar high wears off.

In the meantime, the economy continues to slide and the money multiplier continues to shrink and more debt classes begin defaulting and asset classes hemorrhaging. Economically, they are not preventing the downturn. At best they are delaying it, at worst they are just throwing hot oil on inflation.