The Leverage Index

Calculated Risk: Obama to Make Changes to Financial Regulatory System:

"Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis."

Here's my idea that would solve a lot of problems: create a leverage rating. It would be just like a credit rating except it would be an audited indication of how leveraged a company is. Then a person could tell at a glance how fucked the company is if the slightest problem occurs.

Simple, eh?

The problem with this leverage stuff is this: sure, some idiot leverages his company 60:1 and it fails, as it probably should, and that fucker deserves whatever he gets. But then he takes a zillion other companies with him - which probably should not happen. In our recent history, the government has stepped in (with Long Term Capital Management, the S&L crisis, and now the 'liquidity crisis') which is expensive and inflationary.

Instead, there should be a web page you could go to called "Fucking idiots of management" and it would list the most leveraged companies, and we could all make fun of them.

More importantly, the short sellers would attack those crazy-ass companies and destroy them before they could do real damage.

That would be awesome.

______________________________________
Read Nano-Plasm
© 2005-2008 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.