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Leverage rose, both fueling and fueled by housing bubbles (and, in Europe, the false confidence fostered by the creation of the euro).
"The bottom line is that systemic leverage rose to unprecedented heights," David Rubenstein, co-founder of the Carlyle Group, explained in Dubai some weeks ago.
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But with deal prices and leverage rising, now might not be the best time for them to enter the fray.
But if the goodwill from acquisitions is subtracted from equity, and off-balance-sheet financing (modest till now because of GE's top-notch rating) is added back in, then GE Capital's leverage rises to a heady 17-to-1.
Organized by Geller and Spencer, the rally was carefully timed to coincide with the peak of the midterm congressional election campaign, in which many rightwing Republicans hoped to leverage rising anti-Muslim sentiment into resentment against the presidency of Obama.
A chart he uses shows the multiple of leverage rising from four times in 2002 meaning $4 borrowed for every $1 of equity capital to 6.2 times in 2007, meaning that firms' access to money enabled them to borrow $6.20 for every $1 in equity.
Private-sector leverage, which rose by 70% of GDP between 2000 and 2008, has barely begun to unwind.
Analysts hope for earnings leverage from rising sales volume and prices, cost-cutting and financial leverage.
Leverage has risen dramatically (see chart).
Nonetheless, leverage is rising steadily, to worrying levels.
This time European corporate leverage has risen but spreads have fallen.
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Justyna Jupowicz-Kozak
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