It sounds complicated, but the basic idea isn’t hard to follow. You take a dollar and borrow nine against it; then you take that ten-dollar fund and borrow ninety; then you take your hundred-dollar fund and, so long as the public is still lending, borrow and invest nine hundred. If the last fund in the line starts to lose value, you no longer have the money to pay everyone back, and everyone gets massacred. The famed economist John Kenneth Galbraith wrote up the Blue Ridge/Shenandoah incidents as a classic example of the insanity of leverage-based investment; in today’s dollars, the losses the
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