FROM THE EDITORS October 1, 2007 ISSUE

A WAY OUT OF DEBT'S GRIP

WHO AMONG US ORDINARY FOLK really wants to carry more debt? Most of us would rather steer our personal financial ship somewhere closer to calmer debt-free waters.

But some hedge fund managers, banks, and other financial market players have been doing just the opposite every business day. Or, they were doing so before the recent credit crunch. In the years following the dot.com boom (and bust in 2001), financial institutions took on increasingly risky debt, in the form of securities backed by loans made to high-risk home-buying borrowers. This debt-based strategy initially delivered financial gains, as investors in the United States and around the world profited from Americans' propensity to borrow, buy, and consume.

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