macquarie prime reduce margin on cfe ., page-19

Ironically, as a share price goes up, the higher price enables borrowers to borrow more against that company, rather than less.

Common sense says that if the intrinsic value stays the same, the higher the price, the higher the risk - there is less upside and more downside. And yet, investors can borrow more the higher the price is.

For a given Intrinsic Value, risk is inversely proportional to price. And yet they treat it as though it were proportional.

Lenders, if they really considered risk properly, should alter the LVR downwards as a company goes up in price, and alter the LVR upwards the cheaper a share price becomes.

Ask yourself, if CFE a bigger risk, all thing being equal, at 35 cents or 70 cents?

And yet you can borrow a hell of a lot more at 70 cents, and les at 35 cents.

And people wonder why bubbles emerge. Financiers contribute to bubbles emerging, through poor risk management and lending practices.

Yaq