Red Line 18

Borrowed money turns a dip into the end.

You have €10,000. A bank will lend you more to invest.

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Red Line 18 of 48 · Shelf 3 · Risk

Red Line 18 of 48

Leverage makes good years better and bad years final.

The idea

Borrowing to invest multiplies every move. Up years grow faster; a deep enough fall takes everything, and there’s no coming back from zero.

The numbers

With €10,000 of your own and €10,000 borrowed, a 10% rise makes you 20%, and a 35% fall takes 70%. At about three times, a 35% fall takes it all.

Where you see it

Manias end the same way again and again: prices pushed up with borrowed money, then a fall, then forced selling that pushes prices down further.

Where it bends

A fixed-rate home loan you can easily carry is a different kind of debt.

This game’s numbers

How strong the proof is

=Outside the four steps: it follows from the arithmetic

True by the sums

With five times borrowed money, a 20% fall wipes out everything you put in. That is arithmetic; the data on retail leverage agree.

ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors European Securities and Markets Authority, ESMA press release ESMA71-98-128, 2018
The Leverage Cycle John Geanakoplos, NBER Macroeconomics Annual 24, 1-65, 2010

Checked 2 Nov 2026 · How we grade

A Strong proof: Many good studies or long official data, from different teams or countries, point the same way.
B Good proof, with limits: Solid studies agree on the direction, but the size varies, or the data covers few places or few kinds of people.
C Mixed proof: Some good studies for, some against, or the evidence covers only part of the line.
D Thin proof: Mostly one book’s argument, one survey or stories. It may be wise, but it has not been tested well.
= True by the sums: It follows from arithmetic, so no study can overturn it. We still show what real data says.

Where it comes from

Charles P. Kindleberger, Manias, Panics, and Crashes (1978). In our words, not quoted.

See it in numbers: Leverage · Debt (From Zero)

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