Paddy-Brilliant ! Your concise delivery, extreme wit and wonderful balance of teaching without talking down to the audience or allowing for any show of arrogance is refreshing. It gives me hope for the future of media and the Internet. Just when I thought Marketplace was impressive......Way to go Folks !!

Very good explanation. Couple of questions I have always wondered about..(a) why would banks provide such a high leverage to Hedge Funds? What guarantees they have now that we know about some astronomical collapses of Hedge Funds in recent past (LTCM)??
(b) Why all the secrecy in what the hedge funds are buying and selling? If we require Mutual Funds to make all the disclosures, why not hedge funds?
I am sure geniuses at SEC/Congress are asking these questions in hind sight, however why not start now so that we can start to clean up this magical mess. As you have explained so superbly, the amalgamation of rich (aka accredited) people's money plus leverage creates vast concentrations of funds that can sink few select positions that they are holding in a hurry.

Money is created "out of thin air" by the Federal Reserve. When Paddy talks about the FED buying the Treasury, that is called monetizing the debt. Potentially very inflationary.

I work in the financial industry providing explanations to financial advisors like the ones found here. I just want to say how much I appreciate the concise and straight-forward explanations that even help some one like me understand the core concepts better and how to explain them.