Why We Borrow Until It Hurts

Leveraging Lets Us Gain in the Short Term -- and That's When We Stop Thinking


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If the subprime mortgage mess has taught us anything, it is that we are leverage addicts. Nearly all of us are -- from Northern Virginia, where we bought big houses with no money down, to Wall Street, where traders borrowed cash to make bigger bets on the housing market.

Seeing Zero Percent Interest Until Next Year! on envelopes causes us to tear them open, find the Web address, enter some information and send new credit cards hurtling toward our mailboxes. Financing cars for three years is so passe; we finance them for six or seven. And now we buy -- or used to buy -- houses with pick-your-payment mortgages. We are leveraged from here to China. U.S. consumers spend more than 14 percent of their after-tax income just to stay current on household debt.

The question worth asking now is: Why do we love leverage so much that it hurts?

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