Tuesday, 7 October 2008

Leverage: One Cause of the Financial Crisis

Teachers who like to deal with topical issues in class won't want to skip over the current meltdown. The problem is that so much of what has been happening in the world of finance is so arcane - impossible for us to understand, let alone explain in simple English to our students. However, there are some very important phenomena that can be grasped, described and discussed.

One of these is leverage, and a fair amount of people seem to agree that leverage is at the root of a lot of what brought the world of finance to the abyss. Know what leverage is? In essence, it is really quite simple.

See http://www.fullspate.net/meltdown.html for an easy-to-understand article about leverage and how it can have such nasty results.