GLOSSARY OF TERMS
The current economic crisis has brought these esoteric terms into mainstream conversation.
| TERMS | | Leverage | | |
The term highly leveraged, means a company or individual has borrowed too much money to invest personally for to finance a business. The more leveraged companies or investors are, the more they are at risk should they be called upon to pay their debts. Investment banks have traditionally used high levels of leverage.
(SeeInvestment Banks)
By contrast, commercial banks operate under strict federal regulations that limit the use of leverage. Highly leveraged institutions ran into trouble when mortgage-backed investments collapsed, leaving them unable to make their loan payments.
SeeMortgage-Backed Security.
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