Let's think a little bit about leverage.

Leverage is when you use debt to buy an asset.

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

You'll hear people talking in terms of 10 1 or 2 1, or something to one, but 10 3 is a fair leverage ratio.

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

I'm going to show you about leverage.

And my introduction to business was in these 100 little infuses of capital.

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

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

That assets, A for assets, is equal to

But we'll do a whole playlist on that.

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

leverage, it's assets to equity another one that people often use, often in the investing world, is debt to equity.

And what is required is a combination of physical capital, institutional capital, human capital and security, of course, is critical, but so is information.

It should start to make a little bit of intuitive sense

And then on the equity side, because we have no liability, so in this case assets will be equal to equity.

There's a couple of really big problems that are still sitting there.

One is leverage.

liabilities plus equity.

And so if you think about someone who has a lot of assets, but they're controlling it with very little equity, they have huge leverage.

let's say I have a 50 loss on these loans that I made.

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

So this is just another visual representation that

less capital intensive that there's less money that's required

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

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

A normal investment bank is not a deposit bank, it's an investment bank it has 15 to 20 times.

Capitalist country.

I'll do that in yellow.

So in the next video,

Let's figure it out. It's equity.

One, what shares are share of

You love your heroes.

liabilities plus equity is equal to assets.

I use 100 gold pieces.

And then the equity is, essentially we would look at this formula.

liabilities.

In return on equity, the numerator is the net income that we got, so it's 350,000.

like an equation, but it's assets is equal to liabilities plus equity.

Good health is his capital.

So the only liability is this 5,000.

It's good for you.

That just comes out of the definition of what equity is.

And so liabilities plus equity is equal to assets.

I'll draw it a little bit bigger.