The Impact of Debt
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The Impact of Debt
better—financial leverage is something you need to watch carefully. As with any kind of debt, a judicious amount can boost returns, but too much can lead to disaster.
Pat Dorsey • The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market
Now we have the makings of a financial crisis: home buyers’ bets were multiplied fifty times over. The problem can be summed up in a single word: leverage. If you borrow $20 to wager on the Redskins to beat the Cowboys, that is a leveraged bet.* Likewise, it’s leverage when you borrow money to take out a mortgage—or when you borrow money to bet on
... See moreNate Silver • The Signal and the Noise: Why So Many Predictions Fail-but Some Don't
Farley conceded that there are “a lot of underwater bonds in the banking system and that can pose financial stability risks because banks are leveraged institutions. If it’s levered 10 to 1 and you have a 10 percent loss, all the equity is gone.” Which, of course, is exactly what happened to Bear Stearns, which at times was levered 50 to 1, meaning... See more