4 ms·

No one clicked on my link above or they would have understood what I meant.

• netcan 18y ago
  I did. No offence, but it's a poor explanation. Actually I think it's flat wrong. There's a crucial link in the chain she is missing.
  • gscott 18y ago
    If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent. There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions. Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
    • netcan 18y ago
      This is what I meant: "You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)" The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.