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. ”
Pete Ware 