Leverage Quotes
This quote is often misattributed to John Maynard Keynes. See linked quote.
Nixon staff assistant Chuck Coulson used a variant of this quotation. See {628753}.
Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. Is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism, and through heavy lobbying, escaped any kind of regulation. It cost a company no money to write a credit default swap, and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up. When that happened in 2008, even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.
Leveraged means that the company is not investing all its own money and has borrowed some or much in a highly leveraged situation. He, and most corporate executives, used to be very wary of corporations being highly leveraged. However towards the end of the 20th century the CEO’s—ironically especially in banks and financial companies who should have known better, tended to get away from this worry, and led their companies to very highly leveraged situations. When the Meltdown of 2008 hit, most were so highly leveraged that they became insolvent very quickly and the Great Recession followed.
