The fed dropping rates encourages folks to create more devices to increase return on money...like I said...its an enabler. The implosion of the mortgage industry is a great example of this. They extended themselves out of the safe zone...and in looking for better returns seriously pumped up the amount of high risk borrowing..and one quick turn in home buying erased not only the return...but a chunk of the base principle.

These hundreds of millions in losses, in turn, has blown up several multi-billion dollar derivative funds that were cents on the dollar leveraged against these loans. This is a huge magnification of what was essentially a controllable catastrophe.

Mortgage comapanies lost the revenue of the interest payments, but in many cases did not lose a huge amount against their base principle in anything but liquidity. They regained the asset borrowed against, the property. They have carrying costs, and often sell at below market to liquidate the assets, but that is their management choice to free cash to go back into their primary business of loaning it out.