Gross: "Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices."
Since homes are the most highly levered and monetarily significant asset that American consumers own, if they decline much further they will drag the rest of the economy with them.
There seems no way that current reserve requirements for banks will not in some nearly uniform way be imposed on investment banks. Leverage and gearing ratios of securities firms therefore, will in a few years resemble those of commercial banks themselves resulting in reduced profitability for major houses such as Goldman, Lehman, and Merrill Lynch...Shadow banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets.
This illustration ran with an earlier article by Gross; it explains something about the reserve requirements discussed above.