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The Next Borrow-Short Lend-Long Guaranteed to Blow Up Bank Lending Scheme,by Mish Shedlock

Posted by L Levin on February 17, 2011 at 9:36am
Borrow-short lend-long strategies have caused more pain and grief than nearly any play in the book. They are virtually guaranteed to blow up given enough time if the duration mismatch and leverage is too great.

For those who do not know what I am describing, a couple examples below will help explain. The first example is a look at "cost of funds" and guaranteed profits that banks can make. It is not a borrow-short lend-long strategy but will morph into such a scheme as I vary the parameters.                        http://globaleconomicanalysis.blogspot.com/2011/02/next-borrow-short-lend-long-guaranteed.html
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