Friday, November 11, 2011

Leverage...

Jon Stewart on MF Global, regulation and the effects of leverage.  (via Greg Mankiw's blog).

If there is one repeated lesson from virtually all financial disasters it is that it is not bad bets that are the problem, but the amount of leverage used to make those bets.

Reducing leverage would be the simplest way to prevent future financial disasters.  But, as the case of MF Global shows, even when there were limits to leverage, a well connected ex-regulator could circumvent them.