fistf, if you leveraged your money at 30 to 1, you only need a 3.3% fall in revenues for the scheme to go under water.
At 10%, you're in meltdown.
As for leaving the banks to go down, that would be great... except now you have a banking system without JP Morgan, Bank of America, Citigroup, Wells Fargo, etc and the most important part. Confidence.
The system of credit is integral to a market driven system, and the system of credit is fundamentally based on trust. Confidence breeds trust. Without trust, there is NO credit system. Without confidence there is no trust. Without the illusion of stability, there is no confidence.
What would practically all of the large and most of the small banks simultaneously imploding do to confidence for a generation?
If the credit system breaks down, you have an incredibly rapid race to the abyss.
Revenue flows for most industries are not regular, but lumpy. Things like very short-term debts - 'commercial paper' - are used by businesses large and small to smooth over the lumpiness of their trading. If the facility of short-term borrowing on a relatively easy terms and non-punitive rates shuts down - as it did for a short time in September - then you immediately run into a wall of bankruptcies, redundancies, etc with foreclosures and defaults flowing... and round and round we go.
Also, the leveraging technique was used for stock purchases, bond purchases, currency speculation, commodity speculation, etc, etc.
And guess what? the losses on those bets were racking up at more than 10% per day in some cases.
Housing was one of the detonators for the crisis, but the explosives were the system itself after around 1987 and the bringing in of the '
Greenspan put'.
Constantly increasing asset prices - not value - at any cost.
Now that monetary policy is dead (0% fed funds rate) welcome to the hyperinflation gambit.