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Some investors were hesitant to accept the lower expected returns associated with the generalized decline in risk premiums. Accordingly, they tried hard to squeeze out additional returns. Leverage served as the best way to do so: by borrowing, they could put more money to work in their best investment idea; and this seemingly made sense as long as the expected return was higher than the cost of borrowing. In turn, the leveraged positions pushed risk premiums even lower, encouraging another round of leverage.
— El Erian, “When Markets Collide”
