The Fallout and the Bailout.

I feel like I keep repeating myself, the crisis is related to property and leverage. Unlike the tech bubble the issues caused by property and leverage affect the financial systems much more than technology did. The degree of leverage in the system is astounding, much of the whole wealth of the world is currently ‘borrowed’ and that’s a very scary thing, at least for me when I dwell on it.

Some institutions are leveraged differently than others but in general commercial banks are leveraged at 10 to 1 so for every dollar they actually own they owe 10. Savings institutions are about 8.4 to 1 and credit unions are the same. Brokerage firms and hedge-funds are at 32 to 1. Be afraid, that means for every Euro or Dollar they have they owe thirty two! Is there any lender out there that would give you thirty two times earnings? If you average out all institutions you come out with an over all leverage of about 12 to 1.

But stop right there… this doesn’t include derivatives! and they are not …

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