When you can't lend or trade - and you can't invest with the leverage that juiced returns to support seven- and eight-figure bonuses - how exactly are you going to make money?
Sentiment: NEGATIVE
How do you make money? Spinoffs, split-ups, liquidations, mergers and acquisitions.
Leverage is great when it works, and when it doesn't work, it creates a lot of issues. So I think if you limit the amount of leverage that people can borrow, or that banks can borrow, I think you'll find that you'll have a lot less issues going forward.
Companies typically borrow money at less than their return on equity and therefore compound their return at the expense of lenders.
The key to making money is to stay invested.
Financing is tough, and you really have to work hard in the businesses you invest in.
To finance this trade deficit, the U.S. has to borrow from the rest of the world or sell American assets like stocks, businesses, and real estate to the rest of the world.
We've always been modestly leveraged, and we've never believed in a great deal of leverage on either our private equity business or on our investment banking business. And I think it really goes back to my uncle and dad growing up in the Depression and just seeing what happened to people who were overly levered.
When traders were able to earn a million dollars, of which base pay was $150,000 to $200,000 and the rest was bonus, they would go for it. Now if you're sitting there earning $600,000, you become less risk-seeking. And if you have less risk-seeking, the ability of the market to be incredibly volatile is increased.
The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.
This is our 40th year in business. We don't have a single penny from outside investors, and we never borrowed heavily from the banks. We have a healthy balance sheet and more credit than we can use.