John At The Center

This is a very important (at least in my mind) distinction.  When you hear of people say that you can’t cure a mess that was caused by leverage by throwing more leverage at it.

Another (and I would argue, better) view is that we’ve had a collapse in the shadow banking system and we need to put up temporary supports to help us ease into it.

Solving a “balance sheet recession” (eg. one started by deteriorating assets sitting on IB balance sheets), is all about slowing the deleveraging process. That at least is the view of Morgan Stanley’s interest rate strategy team.

via FT Alphaville » Blog Archive » How to solve a ‘balance sheet recession’.