[AJ007]

The problem with leverage is that you don't need a 100% failure to be wiped out. This is why the US crises was not very surprising, the investment banks had upwards of 1:30 leverage ratios. Similar things were happening to real estate investors.

So no, not all of the loans will go bad. But, some go bad. First prices stop growing. No growth? Why borrow to buy? Next prices drop, and then suddenly a lot of loans that should have been ok are worth far more than the underlying assets. Then it is just a big mess.

Think of a credit bubble as a game of musical chairs. The people who borrow money at the end always lose (also the ones that lend money.)

[hangonhn]

Yes a good point.