On 2008-10-10, Ed Huntress wrote:
And the reason for this happening, is that with the new financial
structures, derivatives etc, there are many players that act like
quasi-banks, borrowing money and lending it, without being subject to
reserve restrictions. So during the growth years, all of that stuff
ballooned, leveraged up and expanded.

If you look at M3 versus M2 in that graph to which I posted a link earlier
in this thread, you can see it happening. It's no wonder the government no
longer reports M3. It makes it look like the money supply is out of control.
'Can't have that, being monetarists and all...

So here comes the corollary.

More entities than banks participated in lending and creation of money
(such as hedge funds buying mortgages on credit using leverage, etc).

And now, besides banks per se, these entities are also suffering from
losses and forced liquidations.

So, obviously, bailing out banks would not restore lending capacity of
these other entities. So the money contraction cannot be prevented by
bailing out banks.

Therefore, do expect an interesting ride ahead.

i