4 ms·
Issuing a loan is buying an asset. You give the borrower money and in exchange buy their promise to pay it back with interest. And in fact that’s what SVB did,
by digitaltrees 4y ago
Issuing a loan is buying an asset. You give the borrower money and in exchange buy their promise to pay it back with interest. And in fact that’s what SVB did, except instead of originating the loans themselves they bought them from the original lender.
- scotty79 4y agoIt's creating an asset. Creating and buying are different thing. Creating should be allowed, buying should be forbidden.
- roflyear 4y agoWhy?
- scotty79 4y agoBecause it's way easier to buy a lot of unknown risk than create it by lending.
- roflyear 4y agoNot sure that is the case. If you can't buy good loans I really doubt you can issue good loans.
- scotty79 4y agoTo buy good loan you have to check whole supply chain. To issue a good loan you need to check only the borrower and you have every incentive to do so if you can't offload the loan to someone else after it's created.
- roflyear 4y agoUh, no, lol, unless there is fraud expected ... it's not quite simple to "check the borrower" and it takes a decent amount of legwork.
- scotty79 4y agoExactly. And it's a work that bank has to put in if it can't sell the loan. But if the bank can sell the loan it becomes "check the borrower or bullshit the buyer" and the banks decided latter is less work. And that's why 2008 happened.