banks before the housing market crash: "you get a loan! and you get a loan! and you get a loan! and you get a loan! Go and buy a house! Don't worry we won't check your assets and trade your debt as if it's real guaranteed money!"
Banks after all those people declare bankruptcy and start a domino effect: "It was unforeseeable and no one is sure what could have possibly led to this but was probably regulations so if you would be just so kind as to let us do whatever we want..."
I mean the way it works is the bank issues a secured loan. You're borrowing $600k to buy something that is worth (in theory) at least $600k resale. If you default, they sell the asset and get their money back.
foreverwasted on September 29th, 2018 at 02:33 UTC »
Seriously, I could use an ELI5 on what banks do with the money people deposit to be able to give out these loans.
Lugalzagesi712 on September 29th, 2018 at 03:06 UTC »
banks before the housing market crash: "you get a loan! and you get a loan! and you get a loan! and you get a loan! Go and buy a house! Don't worry we won't check your assets and trade your debt as if it's real guaranteed money!"
Banks after all those people declare bankruptcy and start a domino effect: "It was unforeseeable and no one is sure what could have possibly led to this but was probably regulations so if you would be just so kind as to let us do whatever we want..."
Drunken_Economist on September 29th, 2018 at 05:28 UTC »
I mean the way it works is the bank issues a secured loan. You're borrowing $600k to buy something that is worth (in theory) at least $600k resale. If you default, they sell the asset and get their money back.