I hear all the i-banks are highly leveraged…around levels of 20-1. A question I had is how do all the banks find all this lending? If every bank is borrowing at high levels shouldn’t there be some banks that are in turn lending at the same? I’m sure I’m missing something.

These leverage numbers are really silly. As I posted a couple of days ago, I use to do risk management on an interest rate option portfolio. People would call me up and “what’s the leverage?” me:“well it doesn’t really work that way” peon:“tell me anyway” me:“ok, how do I calculate it?”. peon: “You take the total amount of money we have given you and divide it into the total notional exposure”. me: “So a eurodollar option has a notional size of $1 million?” peon: “Of course” me: “Well I guess you’re levered up about 50:1, but we are only using about 40% of your cash to do it” peon: “Oh my God You lunatics!” Of course, there is no issue at all in getting that “leverage” and most leverage on their books is just risk exposure. The delta exposure on that interest rate portfolio was usually in the 1% daily VaR range.

How would you have calculated the monthly VaR on a leveraged loan 1 year ago? How about a AAA RMBS? I’m not being snotty, I’m genuinely curious.