Given I am a glass half empty type of economist, the liquidity meltdown was worse than I ever expected. I did not realize that mortgages were packaged in CMO’s and CDO’s that were then leveraged in REPO’s by “un-educated” hedge fund managers.
I expected prices to fall quicker as interest rates increased, but did not expect financing to all but dry up.
Now I am truly worried about what happens to the dollar – at its lowest level ever – with further interest rate cuts from the FED pending. Could it be that the FED intends to let inflation remedy the mortgage default problem by inflating prices above the “break even” line?
