Banking 10: Introduction to leverage (bad sound)

[londonpie72]

Really good video refreshing my memory ):

[MrPEDOCTOR]

Thanks for the video.

[MultiCheeseGrater]

This is prob a dumb question but, how is it a liability when you give someone a loan, it's not like you owe them money??? Could someone please explain this to me thnks

[Canadianguy252]

Videos are great you are replacing my corporate finance teacher. New sound would be great though

[DayTradersWin]

I like your video - subscribe to my channel and friend to have day trade videos

[vikram7095]

Good one. Clear on leverage and debt to equity

[vikram7095]

Good one.. clear on leverage and debt to equity..

[juliusreea]

negative equity = insolvency?

[Luigi84289]

Hey Khanacademy did the bank borrow the money for those loans?

[CBNAquatics]

@Luigi84289 nope they are actually created out of debt.

[frederickriemann]

Hi! I really like your video but you have to impove the sound. Quality is more important than quantity. I hope this will help you. THANK YOU, your videos are really helpful!

[thehashcat]

Can you expand a little bit on the 2nd concept of leverage you introduced (D:E), and how it relates to the definition you spoke about at length here (A:E)? Mechanically, I understand you can calc it (A=L+E), and come up with 10:3 (A:E) from 7:3 (D:E). But intuitively, a 10:3 (3.3:1) Assets:Equity ratio makes sense, coz you know you will be insolvent if 1/3rd of your assets go bad. How/where does the D:E ratio help us, intuitively? And if it doesn't, why don't ppl exclusively use A:E?

Thanks!

[CBNAquatics]

@thehashcat debt equity ratio is good when you want to calculate the debt of a company or in this case a bank. It is used more realistically then A:E ratios because usually for a bank the debts are much higher then what they have in there equity, hence govt balilouts.

D:E is also primarily used for calculations on stock/ options prices.

[zignationer]

great work, well done!

[xXxVib3xXx]

I hate Macroeconomics.. its a whole nother' language to me.. =(

[LuqmanNaq]

@xXxVib3xXx Austrian economists have a knack for explaining things to the laymen.

[leonharts]

What I dont understand is how can you make MORE loans then what you have in Equity. So what i really mean is where is the gold that your loaning coming from?

[ExquisiteDoom]

@leonharts Nowhere as you are not physically loaning it. The problem only arises when your gold is physically withdrawn and the cat is out of the bag. You could technically loan an infinite amount of money, the problem is if you are loaning 100 times your equity a 1% loss makes you insolvant. Your last chance is to liquidate assets for investors or other banks to buy at depreciated prices or face a bank run in this scenario. In other words, it just magnifies risk, gotta know what you're doing.

[GGODDD]

i love you

[GohanMH1]

I take it that when the checking accounts are issued, the amonunt of money they are issued for technically leaves the bank...?

[lwanatt]

im pretty sure only when the funds are physically requested by a receiver of a check from said checking account, otherwise it would still be considered reserve for the bank, someone please correct me if im wrong

[missmitalik]

so does that mean that it is always better to have as less leverage as possible. Or else, what is the 'percieved safe value of a leverage'?

[CBNAquatics]

@missmitalik there is really no safe value for debt leverage. For example if the Federal Reserve calls in all loans like in the great depression, or it drastically decreased like in the GFC (huge mortgages) then there will be too much debts and not enough paper money floating around.

[blahdelablah]

So basically leverage is neither good nor bad because it is just a measure. It's a measure of the risk/reward strategy being employed at a bank.

[Bellybusterr]

Can you please tka e a loan and invest in a microphone? I would love to watch these videos vut i can't take the crappy audio anymore, i hurts my ears.

[jackuy12345]

keep the vids up man they r great

[nemnaisa]

US banking system is not having a liquidity problem as the government suggested thru the media. It is having a solvency problem.

[pjblabla]

Very true!

just to share with everyone - I saw a series of views on Youtube titled "Crash of 2008" back in March 2008 - where this former market maker made exactly the same point. Recommended

[covingtonium]

@nemnaisa you're brain is insolvent, and no reserve brain could ever bail you out

[arseneremy]

@nemnaisa so the solution is to fire up the printing presses and flood the market with currency. inflation nation is the U.S.'s answer to insolvency. SMH

[MrBigEnchilada]

@arseneremy lol what? how does printing currency increase bank assets?

[JaiisGod]

very good mate. Thanks for the video.

[lucicutzaa2]

Insolvency

[Xs1t0ry]

Audio is very harsh.

Thanks for the video.