Leveraging and deleveraging

[bdgrey]

I'll take the flaccid balloon over the tumescent one any day! At least you can blow it back up. If you burst it, well, you probably can't even afford that drink you so desperately want.

[genesistwoeighteen]

Borrowing is a curse that destroys a nation.

[wjestick]

Leverage is a bad thing. Example:

Without leverage, houses would have to be bought with cash. House prices could never rise beyond what savers and cash buyers could afford.

When you allow banks to lend money, people can afford to pay more for a house than they actually have, pushing up prices.

Eventually cash buyers are priced out of the market. TRAP!

Now banks control the market since buyers must go through banks.

Result, banks can make house prices go up or down at will.

Leverage = theft

[gulllars]

Great video. It's the second i've watched from this channel, the first one was on derivatives. If the others are as good, i'll subscribe.

I found one thing lacking here, and that's a description of WHO buys the stuff overleveraged companies sell, and exactly what is it financial institutions sell? You know, the companies that doesn't produce any physical or intellectual goods.

If anyone has a link to a clip where Hrisch deals with this, pleese respond with the youtube ID :)

[zurriagazo71]

That baloon is Greece, for example.

[xwgrace]

thanks for making this really clear.

[rustyscrapper]

not raising the debt ceiling in august is the pin prick. I give it a 99% chance they will raise the debt ceiling and squeeze just a little more air in the baloon and hope it doesnt pop for a bit longer.

[kapil1ly4u]

Dear the Fed is filling more air in the balloon. It will be Hyperballoon,

[hymnofashes]

The problem wasn't leverage, the problem was FRAUD.

[n00bSLicer]

Balloon throw!

[SoFallsWichitaFalls]

Why did I go to Harvard when I could have just watched this video series? What was I thinking?

[qwertypluss]

@SoFallsWichitaFalls

Hi. I study at Oxford University in England. What do you study at Harvard? How do you find it?

[tmayne220]

@SoFallsWichitaFalls well at least you learnt something in double posting 101

[TehCommentMaster]

@SoFallsWichitaFalls Sick brag about going to Harvard. Don't believe you though ^^ Talk more plz

[dinamo4889]

@SoFallsWichitaFalls Yeah Ivy league is a scam. I went to a State School and most of my professors either went or teach to Ivy league schools. Why pay like 40,000 grand a year when you can pay 6,000 for the same thing. Ivy league is just a brand. Generic drugs are just as good as the real deal education is no different.

[SoFallsWichitaFalls]

Why did I go to Harvard when I could have just wated this video series? What was I thinking.

[guytsemah33353]

very helppfull information, thanks alot

[08326924]

i think the ballon may have poped and the government was desperately trying to stich back the ballon together as it was exploding at huge expense.

[pomoxyz]

you're my hero! Thank'you.

[zulfi721]

thanks for guiding and helping people....

[zulfi721]

thanks for guiding and helping people....

[shoelessjohn]

That's amazingly effective.. to use real business explanations to mask central bank propaganda. This one wasn't as obvious as the Cap & Trade one. Nicely done.

[gogolando]

Once agan, Excellent!

[frefo2588]

Beautifully explained!

[Truthiness231]

OK, by 5:50 it seems that we have two options: make more money with what we have, or stop borrowing so much (or a combination of the two, of course).... OK, so... we're fucked, aren't we? =P

Oh, or, by the analogy, couldn't we "add more skin to the economic balloon" so we don't have to deleverage? That is to say, to make more room for leverage? What would that require and cost?

[victorsasami]

he is not that UPS guy that does those commercials with the white board?

[bamahuey1]

Love your videos. Thank you so much for the way you break these complex subjects down and the way you explain them.

[TheJimmyKrazy]

Nice video!

[MirageScience]

the fed shouldn't have inflated the economy in the first place with super artificially low interests rates. Lets say at like ZERO percent.

[shroomduke]

Wouldn't a bubble be more apt description!

...anyway as long as people make obscene profits from risky and immoral behavior without culpability the market will bubble incessantly! -- *pop* --- *pop*--- *pop*--- *pop*--- *pop*--- *pop*

[mrwas2000atgmailcom]

it's the ups guy

[MelihaSkaljic]

great video and analogy! thanks!!!!

[Msoolala]

The only real value is peoples labour mental and physical this system sucks this value out by taxes and interest. The skin is the people and if you pop them the economy is shit.

[high5flyer]

It is pretty obvious those with the resources do not want other people to buy those resources. Free Market. I don't think so!

[ExquisiteDoom]

This is voodoo shit, how can you print money and inject into a company, to deleverage it by inflating = debasing the economy and lowering the value of the people's earnings? Wouldn't it be much easier if they simple didn't leverage to begin with ; you should never make money out of thin air and make a profit from it, that's called a fraud, you sir are promoting fraud and keynesian economics, and that is bad shit, and it's bad for you and all those you're trying to teach it to.

[ExquisiteDoom]

It's really wise to empovering the population to deleverage the whole industry, you are explaining exactly why the market is going to crash and why the stimulus package is a scam. Why should the people pay for a failing company? Let it fail, let the market allow competent people buy the assets and free the ressources.

[DrReaper]

They are leaving all the people in the bubble and popping them. While they deleverage their buddies using the public bank account. .

[copplemeister]

I think i need a drink! :)

[ImmortalSynn]

Great vid, really helps the layman with understanding this manner of material.

[ImmortalSynn]

...also, Paddy's kinda hot-- for the older bookworm type ;)

[wanderingeyes11]

Leaves everybody very badly needing a drink...lol...great signature!

[Teller3448]

Hmm, thanks but you didnt explain the mechanism involved that bankrupts over leveraged companies.

How does a 2-3% drop in assets wipe out your equity?

[fxb4]

I was just thinking usually i-banks don't have huge amounts of cash on hand right? Its the c-banks thats have large amounts of cash on hand right? Don't hedge funds ususally get that "leverage" commerical banks?

and if they can't pay the commerical banks back, won't the c-bank end up owning part of the hedge funds (debt for equity swaps) ?

[wdai03]

You're a very good lecturer. I'm actually thinking of going into investment banking, i just hope the markets won't change too much after this crisis

[BoilerRush]

This may very well sound silly, but if the problem lies with banks making loans to businesses and funds that dont have the capital to pay back loans, what use is it to give more money to those banks? Would it not make better sense for the government to distribute that 780 billion dollars to taxpayers in the form of some sort of voucher that taxpayers have to use or lose investing in the market? If my taxes are being used to bailout these people, give me the money and let me decide who gets it!

[blessedbe1984]

This should be one of the top videos on youtube about the current economic crisis.

[billyjoeallen]

"Leverage is the surest way for a smart person to go broke" -Warren Buffet

[ArielCaboob]

"Leverage is the only way a smart guy can go broke" By misquoting the phrase, you illustrate just how stupid your opinion is.

[billyjoeallen]

LOL. How certain are you that it's a misquote? Do you think Buffet only ever commented once of leverage? In Fact, I heard him say it exactly the way I wrote it at a Q & A at the U. of Washington. Either way, the substance is the same. If you have some reason for calling my opinion "stupid" other than that it disagrees with yours, let's hear it.

[ArielCaboob]

It's stupid because that quote contradicts Buffet himself, who does indeed use leverage. Also that quote pretty much says if you use leverage you go broke. Whereas in the real phrase Buffet used says it's the only way a rich person "can" go broke. Once again, by misquoting the phrase and lying about it, you demote yourself to "Stupid douchebag"

Congratulations

[billyjoeallen]

You don't seem to know the difference between leverage and naked leverage. When a person can cover a leveraged bet, then it just becomes a convenient way to make a larger bet, not a risk of going broke. The context of the quote strongly implies that Mr. Buffet meant naked leverage, as most people do when they use the term. Nice try, Junior. Why don't you try tossing around some more infantile insults to try and make your point?

[ArielCaboob]

How do you know that I wasn't using that fact as the reason why your quote was stupid? You clearly contradict yourself by saying theres a "safe" leverage then saying it's the surest way one can go broke. The context of your quote in no way indicates any specific leverage, "Leverage is the surest way for a smart person to go broke" Any reasonable person would say the same. Also, what a person meant is irrelevent, especially in a non sarcastic quote.

[billyjoeallen]

Why use quotation marks around a word I never used? No investment is completely safe. This is getting childish. Leverage is a way to make bigger bets. Bigger bets obviously have more risk, more risk means a greater chance of losing money and/or going broke depending on the amount of leverage used. You are so juvenile that it has become embarrassing even to argue with you. I'm done unless you can come up with something substantive.

[ArielCaboob]

It was embarrasing for me to stoop down to your level. The main purpose of this argument is already clarified, the rest of our comments might as well be classified as bullshit. I am juvenile but at least I'm not being corrected by people half my age...

[billyjoeallen]

Still waiting for something substantive.

[ArielCaboob]

I believe you should go (back?) to school before spreading your distorted thoughts onto everyone else.

[billyjoeallen]

noted.