Imagine this when Buffet points out how derivatives distort the market?........this is an understatement when we look at that chart.
If we would max out our credit based on our actual worth we would have to leverage everything for collatoral, less we had the cash to back it. The hope would be to make a nice percentage in profit at the point of sale just to make it worthwhile, thus paying off the debt, or we pay down the debt unable to borrow more. "forever", or go bust.
If we could do this and max out our credit to the tune of 5x our actual tangible worth, and find creditors who were willing to go along with it, they would need to have their heads examined, then strapped in for being a danger to the public.
If our idea was the hope of making a profit we would need little more than a padded room. This kind of thinking got Bugsy Segal killed.
Anyone willing to insure our risk for the cost of a premium without having the capital to back it up would be committing fraud, and having broke this law should get a stiff prison term.
