Quote:
|
Originally Posted by pan6467
And if "Bob" is a bank and someone defaults and he needs the money to pay the interests and CDs and honor his accounts and can't.... then you are truly fucked... cause he needs to find help fast.... if he forecloses and calls in the loans he gave, but still can't honor his own debt..... game over.
|
Yes, that can happen. But people delt with it and factored the that into the cost of the debt.
Quote:
|
But in the above example you gave, I don't see how "Bob" could have been the bank.
|
Why not? He gives a note saying "In 1 year, I will pay you 1000$". He doesn't have the 1000$ now, but he believes he will have it in 1 year if you ask for it. You also believe the bank.
Anyone can make up bills of credit, and if they are creditworthy they will have some worth. If they are less creditworthy, then they have less worth, all the way down to junk bonds.
The top end banks are very creditworthy. They hedge their bets, they behave in regulated fashons that says the government will cover some of their deposits if they go under, and in general are pretty damn safe. Not perfectly safe, but safer than any banking institution the world has ever seen.
Quote:
|
What you are describing is a beautiful and intricate domino design.... unfortunately what you fail to show is the effect of the first domino falling will have on the last domino.
|
With enough fudge room, the loss from dominoes falling isn't that huge. Remember, only 1 person has the debt at any one time. Suppose they have 1000 different people's debts and 30% of them default -- so long as they factored in that default rate, everything is fine. If the default rate is higher, they can use
their credit to pay off some of the extra.
The current currency system of the world is based off of this, except we get bills of credit from the government and/or from a central bank in the end.
Quote:
It's like saying ok, my widget company needs a loan, I am worth a million, so I borrow against my worth now from you. You go to Ace, tell him you need some cash.... Ace says "ok, you have Pan's note and your own so ok."
I default. the collaterol you had of mine that you used is now worthless... Ace comes to you, says, "um Yakk, I see Pan went under, I need to see more collaterol from you now."
|
Or you simply sell him, or a third-party loan buyer, Pan's note.
Or Ace factors in the chance that Pan goes under into his rates.
Quote:
You don't have enough to cover your loan.... Ace forecloses on you.
The person financing Ace, says, "Ace where's my money?" Ace can't raise it, he defaults.... and so on and so on.
|
Ace, if smart, lent to more than 1 person, and charged interest rates high enough that even if some of them default he can pay off the loan.
Quote:
|
Look at the rate of bankruptcies, foreclosures and credit writeoffs the past 10 years.... see which way the trend is going.
|
Sure, credit is easy to get. At the same time, you still make lots of money by lending cash. So long as the banks don't have a large number of bad loans
on the books (every foreclosure is a bad loan cleared off the books) -- and by large, I mean "larger than expected" -- things work.
Quote:
|
We're mortgaged out, no savings, creditally maxxed out and living on a bubble and someone has a needle waiting to pop it..... when that happens..... we're all done, rich, poor, capitalist, communist, EVERYONE, except the person or group holding the titles to everything.
|
I'm not morgaged out. I have savings. My credit is nowhere near maxxed out. My investments are relatively globally based (although I am not invested enough into developing countries).
So who is this "We"? There are people who are morgaged out, who have no savings, who live on credit. There are other people who make lots of money providing credit to those people.
And remember, a title is worthless. You need an orderly society to enforce your title, and you need your property to be able to produce something you actually need.