Leverage

I spoke to a friend of mine today who was at some meetings in Washington, and the word is that it will take several years for the world to "de-leverage."

It is perplexing to all of us how this happens. Everyone lives beyond their means, borrowing from others, and then suddenly those that are lending are out of money as well, stopping the cycle--even reversing it.

So now we pump a bunch of money into the system so those that lend can do it again, and we are left with two questions: isn't that what got us in trouble in the first place? And, where does that money come from. Eventually, we all know, it has to be paid back.

Our company has never borrowed money in any significant amount. We have a credit card that we pay off every month; we have a $250,000 credit line that we dip into from time to time, but only to cover receivables which we are extremely confident in.

We are a pay-as-you-go business. We know exactly where we stand against profit on a daily basis. Over ten years we have grown to a $30 million company, and we have governed our risk by the fact that we are gambling with our own money. This, I suspect, is where most companies have gone wrong in the past few years. More often, they are gambling with shareholders money, and we have all learned that shareholders are 3rd or 4th in line when it comes to who the CEO is beholden to.

So, with the bailouts and TARP and HOPE that we return to rapid growth, let's pray that companies think twice before taking more risk than they can afford to take. It'll be interesting.