Quote from truehawk:
Do you get the idea that too many people are making money prolonging the crisis to just solve it?
They aren't
Quote from truehawk:
What would happen if all CDSs were declared null and void by international agreement, and all loans, property, credit cards and student loans were reset to a 4, 6 and 6 % interest rate respectively.
Many companies that hold CDS and loans would declare bankruptcy.. The cut in interest rates would create a steep sell-off in bonds (would you keep your money in a bank that only paid 4% but had a 6% chance of defaulting?) Without CDS protection, bonds would sell-off especially sharply (interest rates on all new debt would rise) Companies that own bonds in their portfolios would declare bankruptcy, rinse and repeat. It would be a complete bloodbath in banking, insurance, and pensions. The FDIC would bailout consumers' lost checking/savings accounts, but it wouldn't do much for commercial depositors (e.g. money of payrolls) or the people expecting a pension check or a payout or coverage from an insurance company.
Quote from truehawk:
Since the banks do fractional reserve lending I don't see how they can NOT be making money if 80% of their loans are still preforming, even if they were getting only 4% and were PAYING 4% interest, since for every $10.00 in deposits they get to loan $100.00. So for $.40 they would maken$3.20 if only 80% of the loans preformed. So tell me why the banks are in trouble? Cause I don't think it is from lending.
You've got your numbers mixed up. For every $10 in
risk capital (i.e., money with no strings attached other than the right to be last in line when the profits come), banks get to lend $100. For every $10 in
deposits, they only get to lend about $9 +/- something (and hold the other $1 as reserves). Re-run your numbers with the bank earning 4% on $9 and paying 4% on $10 and see what you get.
Next, go look at the balance sheet of Citibank. As of Sep, 30 2008 (before the crash!), Citi had $2.050 Trillion in assets which sounds like a lot, but most of those "assets" are actually loans which may or may not be repaid or may pay a lot less than Citi expected if the loans are renegotiated. On the liability side, Citi owes a total of $1.925 Trillion. Thus, if Citi's assets lose just 6% of their value, the bank is in deep trouble. Given what's happened in the markets and the economy since Sep 2008, many think that Citi's assets are worth a lot less than they were on Sept 2008. That's why Citi's stock lost over 80% of its value since Sept 2008. Even with all the promises of bailouts, Citi sits on the brink.
:eek: 