Why No Outrage? by Jim Grant

“At the end of 2007, Goldman Sachs had $26 of assets for every dollar of equity. Merrill Lynch had $32, Bear Stearns $34, Morgan Stanley $33 and Lehman Brothers $31. On average, then, about $3 in equity capital per $100 of assets. ‘Leverage,’ as the laying-on of debt is known in the trade, is the Hamburger Helper of finance. It makes a little capital go a long way, often much farther than it safely should. Managing balance sheets as highly leveraged as Wall Street’s requires a keen eye and superb judgment. The rub is that human beings err.”

They don’t just err, they get greedy. Is this new? What were the debt to equity ratios of these various firms in 1997? 1987? 1977? Anyone have a thirty-year old copy of Value Line hanging around?

There’s no outrage in part because financial illiteracy is so widespread.