the details

Leverage 101: The Real Cause of the Financial Crisis

Andy is right and User is right and bbzz is right ... higher leverage comes with higher risk. However, even if some individuals want to take very high risk, financial banks should not let them (because they share this risk) and are not allowed to (they need to have sufficient capital).

But lenders not only did it (too high leverage) themselves, they also encouraged you and me to do the same, with some of us (the so called fools) not being even aware of the high risk. Now we have a big bunch of people loosing their homes, investment banks going belly up, financial market in a collapse, economy at risk - and all those executives who not only knew the risk, but also orchestrated it and led us right into this mess walking away with their large 2002-2007 bonuses and golden parachutes.

Let's say you were one of these smart executives, being paid $100M to find a big bunch of fools, lead them into the ditch, then walk away with the money and not look back, ... would you?

This is the most expensive lesson about (abused) capitalism, (dis) honesty, (lack of) values and conflict of interests in modern history.