For your reference, form Financial & Investment Dictionary:

Deposit multiplier or credit multiplier: magnifies small changes in bank deposits into changes in the amount of outstanding credit and the money supply. For example, a bank receives a deposit of $100,000, and the Reserve Requirement is 20%. The bank is thus required to keep $20,000 in the form of reserves. The remaining $80,000 becomes a loan, which is deposited in the borrower's bank. When the borrower's bank sets aside the $16,000 required reserve out of the $80,000, $64,000 is available for another loan and another deposit, and so on. Carried out to its theoretical limit, the original deposit of $100,000 could expand into a total of $500,000 in deposits and $400,000 in credit.

In other words, when bank credit is forzen,the negative effect of reduced credit is also multiplied.

Why not refinance all of these problem loans, those that started life as ARMS or interest only or anthing else that would morph into high interest loans, into 30 or 40 year loans at low fixed rates.

There is no excuse for lowering the face amount of the mortgages. So what if they're underwater. Underwater only matters if refinancing is necessary. Everyone who ever buys a house with a mortgage faces the possibility of one day being underwater. If the buyer has misjudged the market, that is his responsibility. Those who "bought" houses they couldn't afford (even if the interest rate were to have remained low) absolutely do not deserve to keep those houses while the rest of us, who either bought houses we could afford or didn't buy because we could not afford to, pay (through our taxes) for the imprudent buyers to stay where they don't belong.

The pain of the costs associated with reducing the interest rates from the prospective (or already real) punishingly high rates should somehow fall on all the players who fed at the trough of this slimey scheme. That should, as much as possible, include the foolish buyers (dealt with in the paragraph above), mortgage brokers, the mortgage companies, the banks, the investment banks, the ratings agencies, and the investors (especially hedge funds) who chose to believe that higher rates of return didn't suggest higher risk. Oh, and find a special place in hell for the creators of credit default swaps and other "sophisticated" derivitives. As I said above, I leave the mechanics of seeking to achieve all of this to those with the necessary capability.

If this results in bank failures, so be it. If the FDIC can engineer the saving of worthy banks, find. If not, fine. Those who lived high on the hog while ignoring the damage they were doing should pay.

If the FED is actually part of the problem, let's look for a better system, and start over. We don't have to live with them any more than we have to live with the banks that failed to assess the risks of the mortgages they facilitated.

When I left graduate school I lived in apartments until I could afford a house. At 32 I purchased a small house. At 39 I got married. Maybe I was slow, but I was careful. That is better for the economy than being reckless.

On a more critical note, why do you use this unreadable green for comments — do you want to discourage them?

Finally, you have a link promising a dream investment in Wisconsin (my home state) that says "For instance, just check out this new report on a Wisconsin-based company we've discovered that's posting quarter after quarter of earnings surprises "- but it actually leads to a rather sleazy come-on beginning "Special Bulletin — The “Super Crash” May
Soon Devastate Millions Of Americans…"

As individuals, or as collectives of individuals, we exercise “no control” whatsoever over what is “far beyond” reach.

Here is a reality check:

This thing called “money” and “all” that we’ve been taught it means since the day we came into the world, is now “broken” and cannot be “fixed”. This false valuation “idol” that we’ve carried around within our hearts has been, in our time, finally “exposed” as worthless.

It always was a “false” representation of human “value” if only because of the outrageous “misery” inflicted to those “blocked” from adequate access to it. But, now, “everyone” is about to “know” the pain of existing “without”. The world’s playing field is “equalizing” or “leveling out” for all to “see”.

Governments, by their “central banks” are already taking control of “valuation” from the hands of traditional banking regimes in order to “fix” money. With this desperate action, we will eventually, and quickly, see the demise, around the world, of all traditional banking regimes along with their money market exchange devices.

So-called G7 leaders, amid ongoing emergency meetings, are already “divesting” banker custodians of their long-held power. This action exasperates a final panic “freeze” among the world’s banks, which will result in their “split” into “three” separate “non-cooperating” entities. They split up because they don’t trust each other.

Central banks will then “exclusively” try to run the commerce of the world.

Is this going to work?

But, for a time!