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>Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed Sure, in a magical world where 100% of
by rtpg 11y ago
>Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed
Sure, in a magical world where 100% of people pay back their loans. 2008 happened for a reason
- deleted 11y ago[deleted]
- lugg 11y agoI'm not sure what you're point is here. There is no magical world 2008 or not, never do you see 100% of people paying back their loans. Conservatively managing loans means minimising lending to people likely to default, and leveraging enough to cover those who do. You do not need 100% of people to pay back their loans to turn a profit, charging interest is what makes this manageable and guarantees a profit.
- meric 11y agoIf you conservatively run a consulting business, you can 'guarantee' a profit too.
- 3pt14159 11y agoWhile I agree that bankers hold too much influence in politics, this line of thinking is obviously incorrect. First, bankers have margins and compete like any other entity. If they are too conservative they will not get enough borrowers to cover the cost of their staff and facilities. Furthermore, to just earn a profit is not enough, a banker needs to earn a profit consummate with its market capitalization. Most banks are publicly traded, after all.
- rtpg 11y agoWell, there's no guarantee of profit. You cannot predict 100% of the time who will pay you back. It's pedantic, but it means there is _no_ guarantee of profit Of course, you can get pretty close to 100%, but it's a balance of risk and reward, like most things.
- bryogenic 11y agoProper and conservative management includes due diligence wrt the borrower's ability to pay.
- rtpg 11y agoright, but GP was implying that profit is guaranteed because of the interest rate differential. If you have any costs at all (even just operating costs), then that profit is not guaranteed I'm not a fan of banks nor of the amount of money they get for their services, but there's no "guaranteed profit"
- MagicWishMonkey 11y ago2008 wouldn't have happened if the banks did their due diligence, they got greedy and the rest of us had to pay for their mistakes.
- foota 11y agoThey got greedy like everyone else, they couldn't have made subprime loans if consumers didn't ask for them.
- RobertoG 11y agoYou are going to find always consumers of cheap money. That's a fact. Specially if you going searching for them actively as the banks did before the crisis. There is a reason because controls have to be in the side of the lender. Banks, and everyone else, are always going to be greedy. The source of the problem was not greed (that is a constant) but deregulation, that have not been properly corrected.
- ekianjo 11y ago> 2008 happened for a reason 2008 happened because some d-heads decided to throw in the same bucket loans with good ratings and loans with junk ratings. And also because borrowing money was cheap, making it easy for a lot of people to borrow money when they should not have been able to in the first place. A pretty good definition of a bubble. Oh, and thanks to the Fed.
- AnthonyMouse 11y agoDon't forget Uncle Sam. "Subprime" means lending money to people with a poor credit history. The government was cheerleading the whole way because it allowed poor people to buy houses... until interest rates went up and they could no longer afford their adjustable rate mortgage payments. The sustainable way to get more lower income people into home ownership is to reduce housing prices (e.g. by increasing the supply of housing). Subsidizing and encouraging mortgages does the opposite of that -- instead of making housing cheaper it makes borrowing money cheaper, which makes housing prices go up. Which means existing home owners love it and new home owners like it... until all the people who couldn't get a loan in a normal market demonstrate why they couldn't get a loan in a normal market.
- Kinnard 11y agoNope, not so. Banks don't borrow money from depositors and lend it to borrowers. They create the money they issue as a loan. Sadly, no one understands this: https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
- lubos 11y agoEverybody can create new money. Not just banks. Let me give you an example. I'm worth $100. We agree I lend you $1,000,000. Sure, I don't physically have $1,000,000 but I can still make a loan to you and give you some piece of paper telling you you have $1,000,000 deposited with me. My assets have increased by $1,000,000 (loan amount) and my liabilities have increased also by $1,000,000 (what you have deposited with me). I'm still worth $100 but I created $1,000,000 of new money. This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this. So I don't understand what's your point.
- bottled_poe 11y agoI'm pretty certain what you have described constitutes some form of fraud.
- bduerst 11y agoYou're both wrong. Come on. If you, private Bank Lubos, only have $100 on hand but have a customer who wants a $1,000,000 loan, you don't just write a piece of paper. You would go to the U.S. Fed Reserve (central bank) and take out a loan for $999,900 with interest.. The central bank creates the $999,000, and the private bank charges a premium on the interest rate.