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Leverage

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September 18, 2008 – Comments (6)

If I was to say the single biggest thing that made me the bear I am to the degree I am it can be summarized in one word "leverage."

Being a person with exceptionally strong math sense I have just looked at what "they" have done with leverage in utter disbelief.  And then what makes it even worse is you have layers of leverage built on each other, and that is the making of this disaster.

Well, Big Picture has a good piece on SEC regulations that gave exemptions to allow not a marginal increase in leverage, but a massive increase in leverage and these companies are at the root of the crisis right now.

What is this?  Legal fraud?

6 Comments – Post Your Own

#1) On September 18, 2008 at 9:46 AM, dinodelaurentis (75.50) wrote:

dwot,

ever since "payday" loans were legally allowed to charge 400%+ intrest to "distressed customers" (and thus exceding the "vigorish" the Mob charged while loansharking) i haven't been surprised at any of the arcane ways that the rich got richer. NOBODY would allow me or any one i know to "leverage" a loan 80 to 1!

i wonder what Hunter Thompson would write about all of this...

oh yeah. i think he covered it in "the prize pulitzer" and "generation of swine."

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#2) On September 18, 2008 at 10:52 AM, lquadland10 (< 20) wrote:

Amen dino from your lips to god's ears.

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#3) On September 18, 2008 at 11:08 AM, MakeItSeven (32.38) wrote:

It's the mentality that corporations always know better and government bureaucrats just get in the way.

As a well-known Republican "intellectual" puts it: "I don't mind the government as long as it is small enough to be drowned in a bathtub".

So they created the oxymoron concept of the anti-government government, a dysfunctional one that does nothing to obstruct greed (and yet spends much more than one that does its work).   Their ideal government does not really have to be small, it just has to be useless.

The SEC action is an example of that attitude. 

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#4) On September 18, 2008 at 3:53 PM, FleaBagger (28.89) wrote:

What in the world makes anyone think that ours is anyone's (let alone a conservative's) ideal government? If this were what we wanted, we wouldn't complain.

Seven's problem is that he doesn't know where the government he wants ends, and Big Brother begins. He know Big Brother is bad (assuming he's at least as familiar with 1984 as with reality TV), but he doesn't know where to draw a line. Everything is judged on a case-by-case basis according to whatever feels right to him, or feels right to the media that control his opinions.

Conservatives don't there to be an SEC, don't want tax money to be spent bailing out AIG or poor people or anything or anyone anywhere, and we do want personal responsibility. If a corporation is overleveraged, don't buy its stock! How hard is that? (It's really hard if a non-conservative government is using your tax dollars to buy AIG stock.)

I refuse to vouch for the integrity of Paulson, Bernanke, Bush, or Norquist, but I do think we should have drowned this government in a bathtub back in 1930.

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#5) On September 18, 2008 at 10:24 PM, Tastylunch (29.37) wrote:

Agreed as usual dwot. That's why my business rarely if ever uses leverage and when we have it's usually below 30% of equity...

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