Leverage (finance) — Speculative Bubble · Aristotree

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Leverage (finance)

Also known as: gearing

Community · Minsky moment

Summary

In finance, leverage, also known as gearing, is any technique involving borrowing funds to buy an investment.

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the primary tool used to amplify speculative returns
Leverage allows speculators to control larger positions with less capital, which is a defining characteristic of high-risk speculative financial transactions.
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amplification mechanism for market losses
High levels of leverage used by investors and firms during the late 1990s exacerbated the speed and severity of the market crash when the bubble burst.
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Primary driver of market fragility
High levels of leverage are the mechanism that makes asset values sensitive to interest rate changes and liquidity shocks, directly precipitating a Minsky moment.
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Leverage (finance) image — Wikimedia

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Facts