Economic Crises

“… For riches certainly make themselves wings, like an eagle that flieth toward heaven.”  Proverbs 23:5

The recent economic crisis was caused by excess leverage in the financial system. Lehman Brothers was leveraged by a factor of 30 to 40 when it failed.  Leverage is great when the prices of assets are increasing. If leverage is 30, then only 1/30 th of the value of an asset is “invested” to “own” the asset, and the rest is borrowed in one way or another. But, if the value of the asset falls by approximately 3%, then all the original investment is lost. As prices fall more, losses accumulate rapidly, and bankruptcy will not be far away.

I believe this was a deliberate plan by the powers that be to create conditions favorable to an economic crisis to promote their agenda, when they repealed the Glass-Steagal act in 1999, and when they allowed such extreme leverage.  Furthermore, until leverage is restricted to a reasonable amount, we can only expect more such instability and crises.

Under Construction

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