It is interesting that various hedge funds had identical leverage of about 30:1, as people found out last year. It was obvious that there must have been a specific reason for that - and there is in fact! That article ( http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aYJZOB_gZi0I ) shows that the rules were recently changed allowing maximum leverage of 33.5-to-1 (up from the previous 26.4-to-1). That make me suspect that if the rules allowed an even higher leverage like 100:1 or 1000:1, banks would have used it too, because they could arbitrarily reduce the paper risk factor in their models to be always much less than that!
I have another comment: in a free market system, responsibility is tied to the principle of long-term ownership. If the whole financial system is run by a bunch of hired “paysant” managers scrambling to maximize their next quarterly bonus though their "own" bank may collapse next year, then this is NOT a capitalism! Also the idea of share ownership turns out to be very different from a true ownership of a company, if anybody can short that stock do death anytime or dilute it at will. Is it not curious that all the new deals from now on involve only and exclusively the so-called "preferred" shares that were supposed to be discouraged and obsoleted in the US market (*), or just deal with bonds. No large investor wants the common stock! Even the US government is getting the "preferreds" with warrants and a decent dividend, never the common stock! This creates an ominous precedent, that may in fact spell a death warrant for the entire stock market as we know it!
My take on it is that this is a classical attempt at creating a privilege loophole for the elite. They know that the shares trading at P/E>=20 and 2% dividend are a joke and cannot last! The Boomers financiers probably realized that such stock valuation might not even survive through the next quarter (they are good at short term planning!), thus they have created a new "stock" system that pays them a realistic dividend of 10% and has also much higher P/E in line with the historical 5-10, if one subtracts the common stock from the equation!
Just a little on complex I and models - OK, just a brief summary of the parts I like most from the excellent The CoQH2/CoQ Ratio Serves as a Sensor of Respiratory Chain Efficiency. We should all ...
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