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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: manny_velasco who wrote (39698)	8/25/2005 11:51:53 AM
From: Knighty Tin	Respond to of 110194

Manny, the problem is, it is a domino theory deal. If bank x has a contract with, say, Long Term Credit Group, and bank y has a contract with Barings Bank, then the collapse of these counterparties may force bank x and bank y to default to bank JP. Now, bank JP is too big to be allowed to fail, so the Fed will ride in and inflate the money supply to bail them out. Except one of these days that trick won't work. So far, they've been lucky that Barings defaulted, then it was several years before Long Term Credit hit the wall, etc. If we get several of these smaller institutions, who are leveraged to the gills and not all of whom are regulated by the Fed, defaulting at once, it could destroy confidence in the entire system. And confidence is all the financial system has working for it.