S&P to make annoucement at 3PM EST

reply to post by Billmeister


I understand the concept but, in the case of the US, there is no asset as collateral and, in the case of the banks, they don't want the homes because they lent more money than the homes are now worth. If I give you a million dollars and you put up, as collateral, something that's really only worth $500,000, when you default, I loses.

reply to post by getreadyalready


the banks are barely lending as it is and, if they cut back even further, it will hinder production. if money can't be had, crap can't be made.

reply to post by Crakeur

Sorry... the annoying thing called real life got in the way of my ATS duties.

The way I see it, banks only have to hold the minimum reserve in real cash, so when they lend out, let say $1,000,000 they really only need $100,000 in their coffers (examples only... obviously), so the collateral need only really cover this amount.

As for sovereign debt, the collateral comes in the way of utility companies, highways, natural resources etc...

Of course, when I come to this forum, I permit my "conspiracy angle" to be quite obtuse, but I really do think that the banks only play when the situation is win/win... not hard to find when they know that the Federal Reserve has their back no matter what.

Cheers,

the Billmeister

Originally posted by Billmeister
[The way I see it, banks only have to hold the minimum reserve in real cash, so when they lend out, let say $1,000,000 they really only need $100,000 in their coffers (examples only... obviously), so the collateral need only really cover this amount.

on the contrary, if you go to a bank to borrow a million for a home, you will need all of the funds to pay the seller. if you need a million dollars so your company can produce enough inventory to stock the shelves for the back to school shopping season, you might need all of that money if your advance sales don't provide you with the cash flow to cover the cost of production, shipping etc.

Originally posted by Crakeur

Originally posted by Billmeister
[The way I see it, banks only have to hold the minimum reserve in real cash, so when they lend out, let say $1,000,000 they really only need $100,000 in their coffers (examples only... obviously), so the collateral need only really cover this amount.

on the contrary, if you go to a bank to borrow a million for a home, you will need all of the funds to pay the seller. if you need a million dollars so your company can produce enough inventory to stock the shelves for the back to school shopping season, you might need all of that money if your advance sales don't provide you with the cash flow to cover the cost of production, shipping etc.

I fear that we have swayed too far from the OP, and my original sentiment that the bankers were dictating to congress how to act, and the result will lead to the debt ceiling being raised.

On your point, the end seller in the housing market is extremely rare (that is, the one who sell, cashes out of the system), in the vast majority of cases the market consists of banks exchanging mortgage contracts... thus the fact that you do not get a suitcase full of cash to exchange for the transaction. (the cash just isn't there)

This insures the banks their no-lose situation... the cash down must be deposited, and the home placed as collateral... all real-world intrinsic value stuff in exchange for debt creation on a balance sheet.

As for inventory, it acts as its own collateral. Of course, it becomes somewhat of a nuisance to the banks if they actually have to deal with the real-world value goods, because they are in the business of interest collecting and speculation, however, their bets are hedged either way.

the Billmeister