There’s a lot of talk these days about institutions that are Too Big to Fail. But this misses the more important point. The heart of the problem is systemic throughout the Credit system, and I’ll refer to it as Too Big to Suffer a Loss. The entire financial system would have come unglued if agency debt and MBS holders suffered losses – losses that could have triggered another round of speculative deleveraging – that could have triggered outflows from "bond" funds – that could have triggered losses in "money" funds and/or a flight from the dollar.

"Moneyness of Credit" remains an invaluable analytical concept. Despite acute vulnerability, the U.S. Credit system – hence the American economy – has resisted implosion specifically because the heart of the monetary system has retained its "Moneyness." Indeed, nationalizing Fannie and Freddie was seen as necessary to retain confidence in the core of contemporary "money" – agency obligations, "repos" and money fund assets. This highly inflated supply of "money" has become so large as to almost on its own shoulder the entire U.S. (global?) financial system and economy. "Money" has become Too Big and Consequential to Suffer a Loss.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.