Yellow Card for “Wealth Creation” 0

As I have discussed before, a basic tenet of Wall Street in recent years has been borrowing your way to wealth.

It is not called “borrowing,” natch, it’s called “leverage.”

Buy something.

Borrow against it.

Buy something else.

Borrow against it.

And so on, until you “own” lots of stuff.

This works just fine as long as you can keep borrowing. The thing is, it doesn’t “create” anything, except the appearance of money as it flies by from one debt to another. It looks like wealth because, as the money flies by from debt to bigger debt to even bigger debt, the amount of flying money gets larger. But nothing is being created.

This works fine until you can’t borrow any more. Then it all goes, you will pardon the epression, “crash.”

Well, the Brits didn’t particularly like it when Americans used that practice to ruin the finances of the Liverpool football club:

Fans partied in the streets with Tom Hicks and George Gillett Jr. in 2007 when the Americans attended one of their first matches as owners of Liverpool Football Club. A year later, Gillett was getting death threats.

Liverpudlians turned on the men for breaking what supporters saw as a promise not to put the 117-year-old soccer team in hock. They complained the pair borrowed so much that interest payments ate up the cash needed to restore “the Reds” to glory. The owners have been negotiating with Royal Bank of Scotland Group Plc and Wachovia Corp. to renew a 350.5 million- pound ($578 million) credit line before it expires today.

The concept of “leverage” is a fancy word for legal Ponzi scheme.