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[QUOTE="Fat tire 13, post: 3704768, member: 6171"]
You are talking about leverage and where it is used in the financial world.

Regulation depends on what type of product and who gets hurt if it goes wrong.  For example, after housing blew up in 2008 you had to have bigger down payments and they cut back on ARM mortgages.  For the world of futures, it is regulated by the CFTC and it is very mathematical depending on the volatility of the asset

For hedge funds, there is some SEC regulation.  The is more "informal" regulation from the fund's custodian and prime broker.  If the fund takes too much risk, they force them to cut back.  Because if the fund blows up, and there is a deficit, the prime broker is left holding the bag

Now the last point is how these sorts of events percolate through the market, and affect the average person.  That is the trickier part and you need good regulators.  The problem is most of Congress understands very little about the industry (i.e. Zuckerberg questioning), and the regulation is either too slow, or too influenced by the $$$ from the big players.
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