FED Injects More Liquity (Round 2 or is it 3?...)

So here we go again, another attempt to prop up the collapsing credit system. Will it work? It is indeed a good thing that the FED is stepping in to take on Mortgage Backed Securities and provide liquidity to the market. However, something must be done to stop the sweeping tide of defaults that is causing the severe dislocation in the credit markets. Deleveraging in the credit system is more destructive than folks realize. The fact of the matter remains that in our "fractional reserve" banking system, where banks only hold 1/9th of what they are willing to securitize and lend out, means massive credit defaults will be magnified. Leverage is a double edge sword. During an expansion it will allow you to realize far larger gains with less capital, but in a contraction it will have the very same implications to the downside. In a nutshell it won't take much to erase a banks book value and make them insolvent.

It appears to me we are on the verge of seeing a very large bank (dare I say a Citigroup or Washington mutual) implode right out of existence. I believe it to be a certainty that before this pandemic of the credit markets runs its course there will be one more shoe to drop, and it will be the a very well known financial institutions total collapse. Stay tuned!!