I can buy into this list, esp. things like leverage.
Trouble was that Banking was/is, at it's core, a low margin business.
Bankers wanted it to be a sexy, high margin business.
For a while, something like 40% of corporate earnings came from finance.
Leverage = Risk.
Economic View - Six Errors on the Path to the Financial Crisis - NYTimes.com
"The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile."
No comments:
Post a Comment