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Tabb Group have conveniently published an excellent explanation of the collateral crunch theory as explained by Miles Reucroft who neatly explains the perfect storm of increased demand for collateral due to impending mandatory OTC clearing and bilateral margin, with reduced availability of eligible collateral due to quantitative easing.  Reucroft also gives some ideas as to how collateral conversion may help, and its limitations/risk.  See here on the Tabb Group site.