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Delawhere Jack
1000+ Penny Miser Member
USA
1680 Posts |
 Posted - 02/04/2009 : 21:59:31
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Ok, I need some help here. Maybe I'm just stupid (there have been precedents..).
Ok. Our banks make loans equal to (historically) 10x's the amount of deposits they hold. These loans are then entered as "assets" on their books, when in fact they are nothing more than ledger entries. They are in fact money that did not exist until someone signed the mortgage, or car loan etc.
Now, say that the bank had $100,000 in deposits against which they wrote $1,000,000 worth of mortgages. They have now increased their "assets" by 900%. On top of that, over the course of a 30yr mortgage, they will actually collect 2.5-3 times the amount loaned which didn't really exist as currency, but was just a ledger entry conjured into existence when someone signed on the bottom line of the mortgage note.
Ok, so now, if things go well over 30 years they turn $100,000 into $2.5 - $3 million dollars.
So, for mortgages that remain current, and are paid off in thirty years, they've increased "their" money 25x's, or 2500%. Not a bad deal. Can you name anything else that can provide(legally) those kind of returns?
Now, let's say things aren't going so well with the world, and half of their loans go bad. In fact, things are so bad that they end up repossessing 1/2 of all the houses that they've made loans on. So, they end up with 1/2 million dollars worth of houses that they financed with only $50,000 of actual cash. Of course, the houses have lost 30% of their value due to the bad economy, so they are only worth $350,000 on the market now. But, the bank owns them, and if they sell them at the market value of $350,000, then they've made 7x's return, Ok, realistically 5x's, since they do have overhead.
Someone please explain to me why we are being raped to bail out such a lucrative enterprise, that even in bad times is still making obscene profits.
Are you keeping your pitchforks sharp?
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"Educate and inform the whole mass of the people... They are the only sure reliance for the preservation of our liberty." Thomas Jefferson
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Fractional reserve banks "losing money"?
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