Agree that Banks can borrow 25:1 because the FDIC guarantees deposits. Corporations (Commercial and Industrial) cannot borrow more than 1:1; you say 5:1. I say that is too much, with the possible exception of commercial real estate loans. 😎
Great video. Very well explained. Is corporate debt (ah I mean leverage) a problem these days (summer/fall 2019)? Although the debt is high many experts say it is not a problem. Maybe it is not a problem now when the earnings are still high but once recession kicks in it might become a problem. Any thoughts on it with respect to the current situation?
Funny man you are. You didn't mention the other option for deleveraging: Printing money to devalue the debt and raise asset prices...so that the company can go for further rounds of leveraging.
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 :)
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.
Excellent video. But what's happening is that excessive leverage, easy credit and easy money are inflating Capitalism. The system is begging to cleanse itself from all these leveragings and excesses and eventually it will, with a huge contraction. Leveraging, easy credit and the abundance of printed monies by central banks have created a huge disequilibrium. Good luck to central banks in their irrational efforts to keep that disequilibrium going and the good times rolling.
thanks for the info! dumb beginner question but am I understanding this correctly?.... If I were to open a position with 100 dollars for instance, and I have 10:1 leverage, it means I am trading with 1000 dollars - so if I invest this in a stock because I think the value will go up (and it does) all I have to do is close the position, the broker gets their investment back and I make more profit than I would have done if I hadn't used leverage. What happens if I open a position with the same investment/leverage and the stock price drops dramatically? Could I potentially end up loosing an entire 1000 dollars, even though I only invested 100 dollars of my own money? If the share price dropped to almost nothing, could I not wait until the share price goes back up again before paying my broker back? Are there deadlines for returning the broker's money? If anyone could let me know, it would be greatly appreciated!
+fredsk877 Did I watch the same video as you? The video is about deleveraging not leveraging to buy stocks. But anyway, of course you could lose the whole $1000. It's like anything else, you borrowed the money, so you have to pay it back. Regardless of what you did with it. I'm no expert but I would think in what you are talking about you would borrow money (and pay interest on it) to buy more than you otherwise would. So lets say you want to buy shares in google, you might have $100 but you're really sure they'll go up (at a faster rate than your interest rate) so you borrow another $500 and buy more shares than you would otherwise have been able to. Depending on what the loan was secured by will affect whether you have to sell the shares if they go below what you borrowed. If it's secured by your house, or its unsecured you won't be forced to sell them. Really you'd have to talk to whoever you borrowed the money from to answer that question. But honestly it sounds like you shouldn't be risking the banks money (which you will have to pay back with interest), you should just invest with your own (if you've got $100, buy $100 worth of shares).
Leverage is a problem, when the lender can create debt without adding value. When banks can create money out of thin air through fractional reserve, then debt can exceed the total assets in existence. Then the debts become un-payable and de-leveraging produces terminal deflation. If you understood where money came from you would cut down on the ignorant comments
Probably this is for people that didn't went to Harvard. Althought given the current state of the overal economy, Harvard isn't a badge for perfection and professionalism...
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?
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.
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.
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*
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?
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...
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.
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.
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
You attempt to sound smart highlights your ignorance. Leveraging is only benign if it is capitalised. Our banking system employs fractional reserve, so leverage is inflationary. This inflation is wealth confiscation. The financial system is debt based, so deleveraging is not only deflationary, it shrinks the economy. When the whole western world has fallen into the same trap, assuming they are all idiots is well... idiotic.
Great videos, great way to pass on knowledge. Give this man a drink!
The balloon was simply superb! Very well explained.
these are some of the best video i have ever watched, i have learnt so much, and his explanation are so simple and so well explained. thanks!1
Every lesson ends with everyone needing a drink. Exactly how I feel every time I read or learn about finance; cheers!
This guy's is awesome. I love that he's a great teacher. I actually have a better understanding
Love your videos. Thank you so much for the way you break these complex subjects down and the way you explain them.
2 thumbs up good content, Verifiable by those in the know great presentation video recommended. Just keep in mind it's manipulation on a grand scale.
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
He is simply the best
"Leverage is the surest way for a smart person to go broke" -Warren Buffet
Yet, Berkshire's primary business model is investing insurance premiums. That is leverage.
@@jameskresl "do as I say, not as I do"
Thank you for this video. You are great teacher.
Great vid, really helps the layman with understanding this manner of material.
thanks for guiding and helping people....
thanks for guiding and helping people....
Very understandable.....very charismatic....✌🏼
What a powerful lesson!
Thank you for making these videos- they are really great! Keep up the good work
He deserves two drinks.Great explanation of economy.
Amazing. the balloon had helped to me to understand intuitively. thanks!
Very good analogy.
Nice explanation sir. Thank you. Regards from India :)
you're my hero! Thank'you.
Agree that Banks can borrow 25:1 because the FDIC guarantees deposits. Corporations (Commercial and Industrial) cannot borrow more than 1:1; you say 5:1. I say that is too much, with the possible exception of commercial real estate loans. 😎
thanks for making this really clear.
very helppfull information, thanks alot
What are some effective methods to help balance our portfolio while we continue deleveraging to maintain the ratio?
great video and analogy! thanks!!!!
Good video! very knowledgeable!
Very well explained!
Thnx!
Great video. Very well explained. Is corporate debt (ah I mean leverage) a problem these days (summer/fall 2019)? Although the debt is high many experts say it is not a problem.
Maybe it is not a problem now when the earnings are still high but once recession kicks in it might become a problem. Any thoughts on it with respect to the current situation?
lol, check the market :)
Great video! Very knowledgeable. Now I need me some drink.
Why did I go to Harvard when I could have just wated this video series? What was I thinking.
Leaves everybody very badly needing a drink...lol...great signature!
Great explanation, thank you ! :)
Funny man you are.
You didn't mention the other option for deleveraging: Printing money to devalue the debt and raise asset prices...so that the company can go for further rounds of leveraging.
Nice video!
GREAT ILLUSTRATION..........AKA internet bubble theory !
thanks very good explanation //txs
nice explanation
How does hedge funds can get 25x more leverage ?
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 :)
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.
Wouldn't the sovereign bond market be represented as a massive balloon just ready to pop if interest rates go up even a bit?
interesting to watch this nearly 12 years later. Our countries balloon is severely strained. Enters: COVID-19 "POP"
Excellent video. But what's happening is that excessive leverage, easy credit and easy money are inflating Capitalism. The system is begging to cleanse itself from all these leveragings and excesses and eventually it will, with a huge contraction. Leveraging, easy credit and the abundance of printed monies by central banks have created a huge disequilibrium. Good luck to central banks in their irrational efforts to keep that disequilibrium going and the good times rolling.
Awesome
he is not that UPS guy that does those commercials with the white board?
thanks for the info! dumb beginner question but am I understanding this correctly?.... If I were to open a position with 100 dollars for instance, and I have 10:1 leverage, it means I am trading with 1000 dollars - so if I invest this in a stock because I think the value will go up (and it does) all I have to do is close the position, the broker gets their investment back and I make more profit than I would have done if I hadn't used leverage. What happens if I open a position with the same investment/leverage and the stock price drops dramatically? Could I potentially end up loosing an entire 1000 dollars, even though I only invested 100 dollars of my own money? If the share price dropped to almost nothing, could I not wait until the share price goes back up again before paying my broker back? Are there deadlines for returning the broker's money? If anyone could let me know, it would be greatly appreciated!
+fredsk877 Did I watch the same video as you? The video is about deleveraging not leveraging to buy stocks. But anyway, of course you could lose the whole $1000. It's like anything else, you borrowed the money, so you have to pay it back. Regardless of what you did with it. I'm no expert but I would think in what you are talking about you would borrow money (and pay interest on it) to buy more than you otherwise would. So lets say you want to buy shares in google, you might have $100 but you're really sure they'll go up (at a faster rate than your interest rate) so you borrow another $500 and buy more shares than you would otherwise have been able to. Depending on what the loan was secured by will affect whether you have to sell the shares if they go below what you borrowed. If it's secured by your house, or its unsecured you won't be forced to sell them. Really you'd have to talk to whoever you borrowed the money from to answer that question. But honestly it sounds like you shouldn't be risking the banks money (which you will have to pay back with interest), you should just invest with your own (if you've got $100, buy $100 worth of shares).
you are basically correct, but look up the term "margin call".
That baloon is Greece, for example.
Leverage is a problem, when the lender can create debt without adding value.
When banks can create money out of thin air through fractional reserve, then debt can exceed the total assets in existence.
Then the debts become un-payable and de-leveraging produces terminal deflation.
If you understood where money came from you would cut down on the ignorant comments
👍👍
Probably this is for people that didn't went to Harvard. Althought given the current state of the overal economy, Harvard isn't a badge for perfection and professionalism...
Why did I go to Harvard when I could have just watched this video series? What was I thinking?
CDOs！I love his facial expression
it's the ups guy
noted.
I think i need a drink! :)
"End up with something flaccid and useless." That's what she said.
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?
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.
a ballon= a big bang theory . so we can use big bang theory in economics
Is this dude an alcoholic? It always seems to end with a drink. Good stuff though.
You tube could have saved me from paying 20 grand for uni!
...also, Paddy's kinda hot-- for the older bookworm type ;)
Still waiting for something substantive.
@SoFallsWichitaFalls well at least you learnt something in double posting 101
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.
The problem wasn't leverage, the problem was FRAUD.
Balloon throw!
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*
the fed shouldn't have inflated the economy in the first place with super artificially low interests rates. Lets say at like ZERO percent.
Dear the Fed is filling more air in the balloon. It will be Hyperballoon,
What if there was a condom instead of a balloon?
Algorithm back at it again
Great video but @8:02, is that what she said bro? haha
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?
The solution is bitcoin!
'cause you can't drop out of You Tube.
@SoFallsWichitaFalls Sick brag about going to Harvard. Don't believe you though ^^ Talk more plz
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...
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.
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.
I believe you should go (back?) to school before spreading your distorted thoughts onto everyone else.
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
You attempt to sound smart highlights your ignorance.
Leveraging is only benign if it is capitalised. Our banking system employs fractional reserve, so leverage is inflationary. This inflation is wealth confiscation.
The financial system is debt based, so deleveraging is not only deflationary, it shrinks the economy.
When the whole western world has fallen into the same trap, assuming they are all idiots is well... idiotic.
You clearly didn't "went" to Harvard...smh