lavrage

Ever wondered how banks make HUGE money with very little of their own?
Here’s the truth 👇
💡 Leverage = Using Small Money to Control Big Money
Imagine you have $10, but you make a deal worth $100.
The remaining $90? Borrowed.
That’s how banks operate.
🏦 How Banks Use Leverage
Banks have two types of money:
Capital — their own money
Deposits — your money
Under U.S. rules, to lend $100, a bank only needs $3 of its own capital.
The remaining $97 comes from depositors.
So the bank is doing $100 of business with just $3.
That’s leverage at work.
🔁 How $1,000 Becomes $30,000
Money moves in circles:
1. You deposit money
2. Bank keeps a small part, lends out the rest
3. Borrower spends it → ends up deposited again
4. Bank repeats the cycle
The SAME $1,000 ends up creating over $30,000 in total loans.
Not magic — just the leverage cycle.
💰 Why Banks Love Leverage
Small risk
Big profit
Massive returns
If loans perform well → banks win
If loans fail → depositors & government take the hit
⚠️ The Dark Side: 2008 Crisis
Before the crash, big banks were using insane leverage:
$1 of capital → $30–$35 of risky loans
When housing prices fell in 2006–07:
Loans became worthless
Even a 3–4% loss wiped out entire bank capital
Banks collapsed
Governments bailed them out using taxpayer money (TARP)
🧨 Bottom Line
Leverage is banking’s secret weapon:
Profits go to bankers
Losses go to the public
The 2008 crisis proved how dangerous high leverage can be —
yet the system still relies on it today.
What's your opinion 🤔
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