==May 26, 2010, edit== 

 I’ve added information from the FCIC hearings and recent books and more technical papers.  I shortened the introduction because it has expanded through comments that relate to the text of the article.  If anyone thinks it better to keep in the introduction the NY Sun example of different haircuts for Treasuries and equities, please put it back there.  I moved it into the text where haircuts are discussed.  I think it’s fine to refer to haircuts as covering market risk, but I’ve inserted the standard wording “risk characteristics” from the GAO because that standard wording distinguishes among market, volatility, and liquidity risk.  

 I’m not sure about Section 7.1.  I thought it relevant to include Merrill’s statement in its 2005 10-K, but I couldn’t find anything indicating the significance of other net capital fluctuations.  I’ve just put in raw data without analysis.  I have all the 10-Q and 10-K reported net capital levels from 2003-2009 but figured that was too much information.   

 I added the 10-Q leverage data from the 1990s because it occurred to me limiting leverage discussion to 10-Ks could indicate there was otherwise more post-2004 leverage.  The FRBNY paper gives a useful chart of the much higher 1990’s leverage.   

 In my November 13, 2009, comments I was wrong about Gasparino’s book.  He doesn’t really write that BDs held treasuries before 2004 (although I’ve heard him say that).  He actually details in the book various increases in MBS holdings by investment banks during the 1990s and otherwise before 2004.  He also notes several times their very high pre-2004 leverage, particularly in the 1990s.