Section 05  ·  The Mechanics
Why a quarter down is all the way down.
At four times leverage, the lender’s claim never moves. Everything that falls, falls out of your half.
THE LENDER’S CLAIM THE POSITION WHO OWNS IT $4.00 $4.00 −$1.00 HIS $1 · GONE BORROWED · $3 HIS · $1
$1 HIS  +  $3 BORROWED  =  $4 OF POSITIONS
Position value
0%
His equity
0%
Wiped out
Bank of America, Goldman Sachs and JP Morgan margin-called him. The July drawdown was more than 25%.
He didn’t need to be wrong. He needed the market to move 25%.
BOARDROOM WIRE
Reported  ·  WSJ  ·  illustration at 4×
WSJ reported leverage of 3–4× across the portfolio  ·  figures above are an illustration of the mechanic at 4×, not the fund’s actual book
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R replay · ?final still