- Nov 26, 2011
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A couple months ago, I asked the pseudocons what Trump is doing to head off the next crash.
An example I gave of what he could do is here:
See next post.
An example I gave of what he could do is here:
Here's the thing about leverage, which Trump's federal regulators could actually do something about if the fucker would get off his fat ass.
The thing about leverage is that when the value of your collateral begins to tank, then your creditors begin making collateral calls, demanding cash up front to offset the loss in value of your collateral.
If you are way over-leveraged, and your collateral has seriously tanked, then you won't be able to find enough cash. When that happens, it is like blood in the water, and the entire planet turns on you, your stock plummets to the floor, and your company disappears in the wink of an eye.
Then the market begins wondering who else has a liquidity problem. It becomes a "rush to the exits".
Regulators can minimize this effect AHEAD OF TIME, by stopping assholes from overleveraging themselves.
Bush did the exact opposite. He actually allowed the broker-dealers to DECREASE their capital reserves.
When Lehman went under, it was leveraged something like 70 times.
Private/corporate debt is at record high numbers, kids. Way, way higher than before the 2007-2009 crash. Way higher.
So as the value of stocks (which are used as collateral) starts to tank, or the value of bonds which were issued during the ZIRP/QE years begin to devalue as interest rates rise, then watch out.
Trump and his regulators better start taking a hard look at collateral chains. And fast.
See next post.