brittleness of leverage is //
It is a financial miracle that you can get rid of debt.
Your profit is 50% if you purchase a property with 20% down and the bank financing the remainder, it increases in value by only 10% (I’ll wait for you to do the math.
If you own a factory, you can purchase a machine to increase productivity. The money you borrow to buy that machine will create enough profit to allow you to do it again. You can do it again.
The ratchet is also able to go in the opposite direction.
You can lose everything if the property’s value drops a bit.
Your investment will disappear if your competition buys better, more expensive machinery than yours.
Farming can be difficult. It has always been difficult. However, debt and leverage make it a constant challenge. You can do well for a season if the weather is good and the markets are stable. If conditions change or fertilizer becomes difficult to obtain, or if there is a glut, the bank will still do fine, but the farmer could be wiped out.
Supply chain problems were caused by leveraged organizations needing to find ways to extract every penny of their cash flow. Having less inventory seemed like a smart way for them to get a little more leverage. It all stops when a shipment arrives late.
When a bank or investor considers two power plants and discovers that the coal plant is 1% less profitable but 100x more harmful to the community, they choose pennies over resilience. Because leverage increases the value of a penny in the short term, they feel like they are forced to choose the short-term, fragile and selfish path.
Everything is possible with leverage. Understanding how to fix it is key to understanding it.
