Why they do that? The Levered Market

"Why they do that?" Was the question one of the students asked in the Junior Achievement class that I teach at Stamford HS on Wednesdays. The context of her question was about why people spend more than they have. And it all was in relation to my talk about the credit markets of today and how we got here. Simple I suppose, I could've answered her that not only do people overextend themselves but we have markets that make loans to companies/people who are already over levered. An entire market and sub-market exists in connection to leveraged loans and the CLOs (collateralized loan obligations) they generate. But I simply replied that greed and desire were probably the best examples of "why they do that?" We're greedy and we desire, therefore we create markets that allow us to buy things we don't necessarily have the money to buy.

So in practical terms, I explained the responsible use of credit and how to view risk management not the way I view it professionally, but how they can apply it in their everyday lives. Simple things like getting the best price for a student loan or building their credit history when they get their first credit card. Afterall, learning how to be a good user of credit might someday peak their interest to becoming investors and maybe even portfolio managers that they themselves can extend loans to other syndicates or businesses.