Very brief summary: A 2004 SEC ruling dramatically increased the amount of debt the Big Boys on Wall Street were allowed to carry. The house of cards that led up this certainly had some foundations built in the Clinton, Bush I and Reagan eras, but this decision basically tried to see if pyramid of pachyderms (to steal a line from Dumbo) could balance on top of that house. How bad was it?
"Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly."
Man, if that same standard was applied to me, I could carry nearly $1.5 million in debt.... that sure would be fun for a couple of years, but wow is the hangover is going to suck when the bill collectors show up.
And it makes me all the more confident that we're on the right path now to know that Henry Paulson, the Treasury Secretary leading us down the bailout path, sat there in this SEC meeting and thought this was going to be a great idea and had no qualms about approving it. What, are we now trying to get the U.S. government to a 33-to-1 debt ratio?
Ugh. I'm not looking forward to the next 10 years at all, regardless of who's at the reins.
Posts
No comments:
Post a Comment