Quote from RiceRocket:
This issue isn't really about the money supply. It's about the supply of credit. Securitization allowed banks to lever credit 10 to 1 with fractional reserve lending which they then sold the normal leveraged loans to MS, BSC, LEH, GS, C etc. Then the investment banks re-bundled these loans leveraged at 30 to 1. The purchasers of these CDO's borrowed from future earnings to pay for them. Thus, this process created an enormous inflation of credit, beyond what we have ever seen, even in the 1920's. Now, we have the federal reserve printing money to try to fill the gap, but the gap is so huge, 100's of trillions, that there's no way to print enough money to re-ignite monetary inflation to offset the deflating credit bubble. That's why you see the TALF. The fed is trying to re-ignite the securitization market by backstopping it. Overall, that's why we see such delay in any solutions from the government at this point, they aren't really sure if anything will re-create securitization at a level that will offset the deflating credit.
