Monday, Nov 24, 2008
This is the story of the housing crisis, the banking crisis and the global financial meltdown.
Mortgage Lender: Rolfe talks leverage:
Everyone, everywhere was levered to the hilt, using piles of borrowed money to make leveraged bets on everything from real estate, to stocks, to currencies, to bonds, to companies themselves (LBOs), etc. With so many people maxing out leverage to drive returns, all it takes is a small decline in asset prices for all of them to go bust. Unfortunately, the decline in asset prices isn’t going to be small. Consequently, the value of equity capital will continue to get hammered.
Posted by malct @ 03:43 PM (210 views) Add Comment
2 Comments
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1. icarus said...
The scary point he makes is that 'headline' leverage (56 for Citi, 38 for BoA) grossly understates true leverage because it usually doesn't include off-balance-sheet assets/liabilities. If you included the latter then Citi's leverage would be over 80......and the others don't disclose the extent of their off-balance-sheet assets/liabilities.
2. Vstor said...
I don't think most people get this and how it means that things are going to get worse unless governments start printing money fast enough, and they can't!