Not quite accurate. When you are sitting on top of something (in this case debt as an asset) that forms the basis for how much leaverage you can use and then that asset becomes either devalued ,or impossible to value in any acceptable way then your ability to carry the position forward unchanged becomes the issue. Can you reprice and carry it ,or do you have to sell something you would rather not sell to create the ability to carry forward. These are the issues.
To suggest that all banks ,or even funds are effected ,or effected to the same degree by the latest squeeze is nonsense. Whoever was most heavily entrenched in the 'bad loans' arena will ultimately be the one's worst effected , perhaps even wiped out by theirown overleaveraged position. By the same token that process will create some real bargains especially so for those who are not overleaveraged at this time.
If the central banks most heavily involved can't stop the squeeze with repos without wholesale destruction then they will drop rates until they can....what you can put money on is they will not allow any extended period of deflation....destruction on the margins for those overleaveraged I doubt they will care ...but if it starts to go wholesale they will reinflate....and all those foreign reserves held by the emerging nations ...BRIC etc will be worth correspondingly less as the respective currency strengths are realigned ..ultimately this will bring a higher degree of inflation back into play after the process completes.If you can handle the volatility because you are not overleaveraged then you can sit back and enjoy the drama looking forward to a nice opportunity to sift through the rubble for good value.
Investors will already have sold what they didn't want to keep before this. What they now hold they want to keep.
