Leverage, the use of borrowed money for investing, goes in and out of favor. When times are good and people are making money, it's great. It amplifies returns (positive or negative) and, particularly in real estate, can lead to mind-bogglingly high return on investment numbers. But the downside is also huge, as anyone who lost a job in the wake of a failed leveraged buyout of the 1980s found out.

My summary of the positives and negatives of leverage is this: Everything that's good about leverage is also bad about leverage.

Having said that, this paragraph from Saturday's New York Times scares the bejesus out of me: Let's say you are very wealthy and have $25 million to invest in a portfolio of hedge funds. Banks like BNP Paribas, Royal Bank of Canada, or Barclays will leverage your investment, say four to one, allowing you to invest $100 million, using derivatives. Barclays estimates that roughly $60 billion to $80 billion in leverage is being put on by investors in hedge funds or funds of hedge funds. Other market players say it is more than double that.

Then you add that leverage to the leverage that the hedge funds are already using. It's like buying stock on the margin, on the margin. And I don't even know what that means. But that's what it's like. Of course, like all leverage, this will be fine as long as the markets are fine, which is kind of like saying driving 120 miles per hour is fine as long as you don't hit anything.

If markets go south, people undoubtedly are going to look back on this leverage on steroids and say "What were we thinking?"