Forum Post: Leverage: The Dynamite Strapped to Our Markets

Nice article by Dylan Ratigan on leverage

http://www.dylanratigan.com/2011/12/06/leverage-the-dynamite-strapped-to-our-markets/

"When you prudently borrow money to buy a house or build a factory, you are investing in the future using leverage. But when a bank uses fancy complex derivatives through opaque secret deals, a bank is linking its balance sheet to risks it may not understand and to systemic threats regulators can’t track. Banks are essentially making money by throwing dynamite into random mine shafts and hoping they dig a gold mine. Goldman Sachs and JP Morgan have written credit protection on $5 trillion of global debt, but can’t say how much is Eurozone debt. This is why our markets have gone crazy – last week, the Dow jumped by 400 points in one day, after swooning in November and nearly crashing in August. Asset prices these days reflect guesses about which stick of dynamite will go off, as opposed to doing what markets are supposed to do, which is reflect prudent profit making potential of securities and credit instruments."