The Paradox of Deleveraging Will Be Broken

We are clearly not having as much fun taking off leverage as we had putting it on, or at least the vast majority are not. This week in Outside the Box we look at some very thought-provoking insights from my good friend Paul McCulley, who helps us think about how we got here and what will be the end point. From the letter:

"But what ailed Lehman was but a manifestation of what ailed, and ails the global financial intermediary system: the presumption that grossly levered positions in illiquid assets can always be funded, because those doing the funding will always assume the borrower is a going concern."

You need to read this when you have the time to think. The quotes from Keynes are important.

Paul is a managing director, generalist portfolio manager, and member of the investment committee in the Newport Beach office of PIMCO. In addition, he heads PIMCO's short-term bond desk. And is an avid fisherman

John Mauldin, Editor
Outside the Box

subscribers@mauldineconomics.com

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The Paradox of Deleveraging Will Be Broken

By Paul McCulley

I've only written this essay once since the Kansas City Fed's annual symposium in late August. But it hasn't been because I've been lazy. Rather, I've been working virtually around the clock ever since, in my day job as head of PIMCO's Money Market and Funding Desk. On Wall Street, this desk is frequently viewed as a backwater, a temporary home for new MBAs…