Financial crisis origins

Here’s some more info (see an
earlier
post
) about the SEC’s 2004 decision to allow five investment banks to
increase the leverage they were able to use. Guess which five companies? The
five that went belly up and/or merged with regular banks these past few months:
From The
Reckoning – Agency’s ’04 Rule Let Banks Pile Up New Debt
:

Over the following months and years, each of the firms would take advantage of
the looser rules. At Bear Stearns, the leverage ratio, a measurement of how much
the firm was borrowing compared to its total assets, rose sharply, to 33 to
1. In other words, for every dollar in equity, it had $33 of debt. The ratios at
the other firms also rose significantly. ”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.