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Lecture 2 - Newspaper extracts

Lecture 2 - Newspaper extracts - Extracts from recent...

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Extracts from recent newspaper articles illustrating leverage: 1. Carolyn Cummins 'A low-risk approach follows lessons learnt", Sydney Morning Herald Business Day, 1 March 2010, p. 10 The level of debt is always at the forefront of anyone's mind. From the household budget to buying an investment property (being an office or a house) and as an investor. ... [The gearing ratio is] also the main ratio that has been causing so much pain across the whole economy The people in the US who, in 2006 onwards, were offered loans at incredibly low [historically] interest rates, and took them up with a relish. We now know them as subprime loans. They were the ones that consumers took up at 1 to 2 per cent for the first couple of years, only to have the reset values at 18 per cent. ... It was the high gearing that brought the [Australian] property sector asunder. ... It was the same when the trusts and indeed the rest of the market, even down to the humble milk bar, geared up to buy more and more assets. ... "Gear up" was the catchphrase. And the banks were happy to oblige even though margins on loans were at least 200 basis points [2 per cent] higher than non-commercial borrowings. But
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