# What is a 30 to 1 leveraged loans? **URL:** \ **Category:** Factual Questions\ **Created:** [March 15, 2009, 9:45pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559 "2009-03-15T21:45:58Z")\ **Posts on this page:** 9\ **Page:** 2
**Author:** ![cosmosdan](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@cosmosdan](https://boards.straightdope.com/u/cosmosdan)\ **Post date:** [March 16, 2009, 4:25pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/21 "2009-03-16T16:25:23Z")
> [@Ruminator](#): > > Maybe we’re getting into GD territory but I disagree. It is not a banker’s job to protect your money. To me, it doesn’t make sense for bankers to second-guess their borrowers’ financial ineptitude or the macroeconomic implications of their risky strategies. History has shown that nobody is smart enough to foresee all the negatives. Even Warren Buffet Berkshire Hathaway lost half its value last year. > > Yes, it’s possible to outsource sex duties with your spouse, but would you want to? Like you said, people should outsource the building of bridges and surgery and can’t be expected to know what the engineers and doctors know. However, money is a very special category of knowledge and should be grouped with sex as something you must understand yourself. One of the repeated lessons I’ve gotten is that you cannot outsource the handling of your money & taxes. Society and its corruptible humans (e.g. B Madoff) have repeatedly shown that the financially ignorant will be taken advantage of. > > If one outsources tax form preparation because it’s an **administrative** hassle, that’s fine. On the other hand, if he outsources it because he doesn’t **understand taxes** , that’s a big problem. We were supposed to have people watching and warning. Regulators and as Jon S pointed out so called professional financial journalists and pundits. I think greed and influence caused these people to not do their jobs correctly. Cramer touched on it a bit when he mentioned that things had been going so well for years with high profits that nobody wanted to be the one to miss out or sound the alarm about the consequences of the bubble bursting. ---
**Author:** ![Ruminator](https://avatars.discourse-cdn.com/v4/letter/r/b9bd4f/32.png) [@Ruminator](https://boards.straightdope.com/u/Ruminator)\ **Post date:** [March 16, 2009, 4:41pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/22 "2009-03-16T16:41:28Z")
> [@cosmosdan](#): > > I agree that people need to live within their means and too often want material things they could easily do without but the consumer didn’t leverage investments did they? My very point is that consumers **did** leverage those investments – indirectly. Joe Blow’s endless desires for toys has upstream effects such as investors engineering highly leveraged portfolios. If the video focused all its slick flash graphics on bankers and investors greed, it does not help society’s understanding of this economic mess at all. On the contrary, the video makes people even dumber. Bankers do not work in a vacuum when they create these highly leveraged deals. Where did they get all that extra money (capital) sloshing around the global financial system? And why was their risky behavior tolerated **before** the crash? > [@cosmosdan](#): > > We were supposed to have people watching and warning. I do understand what is **supposed** to happen. I also do understand that it’s what we **want** to have happen. The point I try to emphasize is that the system can’t be expected to work that way when it comes to money. Money is a weird and special entity. To expect a group of people (elected officials or paid financial advisors) to be stewards of money is an unrealistic belief. History has shown that outsourcing the management of money on a large scale always leads to disaster: national treasuries have been drained and retirement portfolios have been destroyed. If citizens ignore the understanding that the economic mess was caused by the interaction of both the consumers and bankers, they will continue to suffer future recessions. All the laws and regulations in the world cannot overcome consumers’ greed. ---
**Author:** ![Algorithm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/algorithm/32/12204_2.png) [@Algorithm](https://boards.straightdope.com/u/Algorithm)\ **Post date:** [March 16, 2009, 5:42pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/23 "2009-03-16T17:42:49Z")
> [@Ruminator](#): > > If one outsources tax form preparation because it’s an **administrative** hassle, that’s fine. On the other hand, if he outsources it because he doesn’t **understand taxes** , that’s a big problem. What’s to be done about that, though? Some people don’t understand due to lack of capacity. ---
**Author:** ![cosmosdan](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@cosmosdan](https://boards.straightdope.com/u/cosmosdan)\ **Post date:** [March 16, 2009, 5:44pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/24 "2009-03-16T17:44:38Z")
> [@Ruminator](#): > > My very point is that consumers **did** leverage those investments – indirectly. Joe Blow’s endless desires for toys has upstream effects such as investors engineering highly leveraged portfolios. If the video focused all its slick flash graphics on bankers and investors greed, it does not help society’s understanding of this economic mess at all. On the contrary, the video makes people even dumber. > > Bankers do not work in a vacuum when they create these highly leveraged deals. Where did they get all that extra money (capital) sloshing around the global financial system? And why was their risky behavior tolerated **before** the crash? > > I do understand what is **supposed** to happen. I also do understand that it’s what we **want** to have happen. The point I try to emphasize is that the system can’t be expected to work that way when it comes to money. Money is a weird and special entity. To expect a group of people (elected officials or paid financial advisors) to be stewards of money is an unrealistic belief. History has shown that outsourcing the management of money on a large scale always leads to disaster: national treasuries have been drained and retirement portfolios have been destroyed. > > If citizens ignore the understanding that the economic mess was caused by the interaction of both the consumers and bankers, they will continue to suffer future recessions. All the laws and regulations in the world cannot overcome consumers’ greed. Responsibility isn’t absolute and I agree that society is a lot of shared responsibility. We have too much and we place too much emphasis on possessions, but still, when it’s someone’s job to to preform task X responsibly it seems reasonable to hold them responsible for failing to do that job, rather than give them bonuses. I agree that people don’t always see long term effects of choices. I’ve seen a lot of that in retail. People put price as primary importance and now wonder why we make fewer things here in the US. Companies have been driven out of business and that clearly effects our fellow citizens Still, those in business have a responsibility to preform their task. ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [March 17, 2009, 1:41pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/25 "2009-03-17T13:41:48Z")
> [@YamatoTwinkie](#): > > True, but then what happens when all your bridge customers migrate to the other guy that **is** designing “lighter” bridges? Sure his designs might not be as “safe” as yours, but some of them have been holding up for 5 years, and they were all cheaper to build than your designs. You can either: > > A) go out of business. > B) get in on the “lighter” bridge market yourself and keep your job. > C) try to convince your former customers that your safety margins are worth the higher price. But no one cares, which leads you back to A). Which shows you that engineers have better ethics and more effective regulation than the bastards on Wall Street. ---
**Author:** ![AskNott](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/asknott/32/5790_2.png) [@AskNott](https://boards.straightdope.com/u/AskNott)\ **Post date:** [March 17, 2009, 3:41pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/26 "2009-03-17T15:41:11Z")
> [@cosmosdan](#): > > Another thought. > > I was always pissed about the practice of CC companies sitting on campuses offering CCs to unemployed college students. It seemed to me that the CC companies were really counting on the parents to cover the debt which is why they were willing to issue credit to someone they normally wouldn’t. > > Why did they lend to higher risk people? Was it because they thought rising property values would cover potential loss? College students are a better bet for the cardies than the average person of that age. Sometimes, the parents will step in, but unless a parent has co-signed, they don’t come into the equation. College students are likely to increase their income in a few years, and the cards want a piece of that. For a credit card company, customers who spend stupidly on credit and miss some payments are hand-rubbingly good news. They can make much more in interest and late fees on them. The customer who shops sensibly and always pays on time is no fun for the card guys. They can’t jack up the interest rate to 34% on an on-time payer. Least fun of all is the card customer who pays off the balance every month. Year after year, he pays no finance charge at all! Mind you, the merchant still pays a little piece of every dollar that passes through the card. ---
**Author:** ![sjaffe2](https://avatars.discourse-cdn.com/v4/letter/s/ba8739/32.png) [@sjaffe2](https://boards.straightdope.com/u/sjaffe2)\ **Post date:** [March 25, 2009, 9:34pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/27 "2009-03-25T21:34:27Z")
all i know is that blaming consumers for this mess is not right like that guy from CNBC did… consumers are what drives this country… the greed was in part of the bankers… sure consumers want bigger houses and newer cars, crazy cellfone and i also understand they can definitely without them… however, its the regulators and elected individuals job to control that… just like a baby wants to play with anything shinning even its fire but as a parent you grab the hold of the baby … you don’t blame the baby for its ignorant… that would ridiculous… i am real estate appraiser who appraised houses that were bought for 1.5 mill with ARM mortgages without homeowners being even told what ARMs are… but the mortgage broker went along with it bcuz they get their 2% commision which 15K dollars… this happened to parents … my dad makes 19K for the year & my moms makes about 5K for the year so for monthly basis they have about 2K-3K to cover ALL of their expenses and this is written in clear language in their tax forms but the stupid mortgage broker gave them a mortgage for 3K PER MONTH… you are telling me that is not greed for the mortgage broker who wants commission on that 300K mortgage… in my business this would be called a predatory loan… you are telling me this is not the job of regulator… do u know how many appraisers and lender lose their license because they kept the public in ignorance and took advantage of them… granted that people lose this sense of wealth when all it is just a plastic card… people want expensive nicer, bigger houses, faster cars and i want to have a chicken pen in my backyard so i can fresh chicken meat but cops would come to my house and tell i can’t do that because its illegal… if you read real estate laws these practices are illegal but for some reason i have not seen any indictments for big mortgage lenders, insurance companies or anyone else… they are honored with medals and bonuses… c ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [March 25, 2009, 10:47pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/28 "2009-03-25T22:47:18Z")
It’s important to note that leveraging is not, in and of itself, a bad practice. If Bob goes out and borrows $100,000 and puts in $10,000 of his own money to start a business, that’s a leveraged investment. We’d certainly be worse off if the only way for entrepreneurs to start a business was to save up enough for all the costs until the business became profitable. ---
**Author:** ![scm1001](https://avatars.discourse-cdn.com/v4/letter/s/c4cdca/32.png) [@scm1001](https://boards.straightdope.com/u/scm1001)\ **Post date:** [March 26, 2009, 9:10pm UTC](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559/29 "2009-03-26T21:10:22Z")
> [@DanBlather](#): > > Which shows you that engineers have better ethics and more effective regulation than the bastards on Wall Street. well if a bridge collapses people die and you may have a manslaughter charge. Also we have a lot of experience in building and know when a structure is likely to be unsafe. Ethics not so much. In finance no one knows anything (though they think they do), so it is much harder to know if you are going to be wrong. Also it would be stupid not to go along with a bubble. How could anyone rationally not invest in real estate (either directly or in CDOs etc) or the stock marcket in the last 10 years and miss out on years of growth? All you had to do was to know when the bubble was going to burst. [Previous page](https://boards.straightdope.com/t/what-is-a-30-to-1-leveraged-loans/489559.md?page=1)