As leveraged assets go down in value, the leverage multiples go up. Adding to that multiple is the falling dollar and the fact that these assets are in reality debt deposits, not cash deposits, that were passed on in different forms to be leveraged over and over.
Merrill Lynch (MER) is all over the press this morning as it announced a fire sale of mortgage debt and common stock and also took a $5.7 billion writedown. This looks bad on the surface, but Toddo notes that it may be the most constructive thing the bank can do for itself and for the financial sector. More banks, such as Citigroup (C), could follow suit.
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