I'm not a fan of your examples because taking on leverage for fixed income assets is not the most common use of leverage, precisely because the rewards aren't that much better but the risks are so high. Also, "being a complete scam" is not the most common downside risk in leverage.
I think an easy example nearly anyone can understand is their mortgage. You put down $50k for a $500k house. The house goes up just 10% to $550k, if you sell you've doubled your money after repaying the $450k you've borrowed. Of course, if the price goes down 10%, you're completely wiped out.
Sure, mortgages are the most common example of leverage for non financial pros. But that's also a reason not to use it as an example. Because even if they're levered 9:1 nobody thinks they're wiped out if their house price goes down 10%, they'd think they just need to hold on to it till it recovers.
> Because even if they're levered 9:1 nobody thinks they're wiped out if their house price goes down 10%, they'd think they just need to hold on to it till it recovers.
Amazing how time flies. I'm pretty sure anyone who was old enough to own a home in 2007/2008 in a "hot" market knows exactly how mortgage leverage can work on the downside.
>knows exactly how mortgage leverage can work on the downside.
Sorta... Usually when people talk about that, it's mostly in the context of balloon payments and variable rate mortgages where the value of your house dropping coincided with sudden increases to your monthly mortgage payment or large bills coming due.
Partially, but a big difference is that tons of lenders were giving out mortgages in the mid 00s with no or very little money down. When things turned south, people were underwater really quickly, so was easiest/best to just mail the keys to the lender, especially in non recourse states.
I think an easy example nearly anyone can understand is their mortgage. You put down $50k for a $500k house. The house goes up just 10% to $550k, if you sell you've doubled your money after repaying the $450k you've borrowed. Of course, if the price goes down 10%, you're completely wiped out.