If you set out to destroy markets and the financial system, your most important weapon is moral hazard, the disconnection of risk and consequence. You disconnect risk from consequence by rewarding those making the riskiest bets and bailing out gamblers whose bets went bad.
You reward those making the riskiest bets by pushing markets higher regardless of any other factors. Nothing matters except your support of ever higher markets.
"Something Will Rebalance": Goldman Boss Solomon Warns That Market Greed Is Outpacing Fear
Goldman Sachs boss David Solomon is the latest to speak out and admit that the market is running at a fever pitch.
In kinder terms, Solomon said this week that greed in the market is now outpacing fear, according to Bloomberg.
He was speaking at the Bloomberg New Economy Forum in Singapore, where he commented: “When I step back and think about my 40-year career, there have been periods of time when greed has far outpaced fear -- we are in one of those periods. My experience says those periods aren’t long lived. Something will rebalance it and bring a little bit more perspective.”
Stock Market Leverage Spikes, Margin Debt Up 42% YoY. Fed Warns about High Leverage Ratio of “Younger Retail Investors”
It’s only when something blows up that we can see tidbits of this leverage emerge in all its splendor, such as when Archegos imploded earlier this year.
The only leverage data we do get on a monthly basis is margin debt at brokers, reported by FINRA. And we got another doozie: Stock market margin debt spiked by $33 billion in October from September to another all-time high of $936 billion, up by $277 billion, or by 42%, from a year ago, and up by 67% from October 2019