I'll actually talk about how leverage is regulated within banks, but just to give you another measure of leverage because this measure I gave you if someone says 10 3

So its assets.

That assets, A for assets, is equal to

But just think of it this way, leverage is the ratio of how much assets you have over how much equity you have.

Malibu Equity and Investments.

Let's think a little bit about leverage.

I don't want to draw this box.

And rich, eh?

I'll do that in yellow.

You know, things like cashpoor and leveraged quarterly decline, yadda, yadda, yadda.

It should start to make a little bit of intuitive sense

Malibu Equity and Investments. Roger Van Zant.

I'm going to show you about leverage.

Obviously , a machine you can't do all of those things to it, but you can at least touch it and possibly smell and taste it.

liabilities plus equity.

And what I wrote here is, it has 4 billion of liabilities.

He is a man of wealth.

He's a wealthy man.

Or across the street from each other.

So the total assets were 5 billion in assets.

You'd have to give up 93 of your net worth.

In a world without leverage so if I didn't have all this

So this is just another visual representation that

It doesn't sound like we borrowed money or anything.

Remember liabilities plus equities are equal to assets.

Each share in this case once again, if you believe that the assets are worth 1 million are going to be 1 million.

Leverage is when you use debt to buy an asset.

But let's say its assets are worth 1 million.

All of the assets needed to start the firm, the pizzeria.

Or they just have a super flush bank account.

Remember, every time it'd issue a loan, like for right here, it issued a 100 gold piece equivalent loan to D and instead of giving D 100 gold pieces from, say, right here, it just created a checking account for D, which later D paid to A and that's why it's labeled A right here. Let me relabel another thing because the gold is a different color just so you see the gold.

But let's just kind of think about a generic balance sheet for a bank.

So 225,000

I guess you could say non cash assets, right?

Are you a man of means?

These are my assets, and these are my liabilities.

And if you look at the species level, you saw about fish.

So, assets are equal to 1,000 gold pieces.

If you're controlling 10 of assets and you only have 1 of equity, you have 10 1 leverage.

So I'm going to give you a little equation, actually, just to take a little bit of a tangent.

So that's the situation we're dealing with.

I won't use the square tool.

We had a 10 return on assets.

And why don't you like them as much?

And it's worth 100 gold.