The Complex Relationship Between Risk and Debt Capital

Decisions are often based on historical outcomes, assuming norm most of the time but forgetting about potential outliers. Market cycles influence attitudes towards risk, leading to irrational extremes and corrective swings. In favorable times, leverage is perceived positively due to higher returns, while negative events lead to a reversal where leverage is penalized. This shift in attitudes impacts the availability of leverage from lenders and can have negative consequences for borrowers.