Goldman Sachs Leverage Ratio

One of the reasons that the financial crisis got as bad as it did was because of the amount of leverage employed by Wall Street as the economy went into a recession.  The market decline was exacerbated if not caused by the mass deleveraging of the financial sector over the course of several of months.  For instance, Goldman Sachs went from $1.1 T in assets in 2007 to $880 B at the end of 2008.  Since it raised capital at the same time, the leverage ratio fell from a high of 26x to a low of 11.8x in 2010.

As securities markets have recovered investment bank balance sheets are growing again, although, using $GS as a proxy, leverage is still much better than it was in 2007.  If recession is on the visible horizon, perhaps this will help to soften any market decline.

Goldman Sachs Leverage