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>The U.S. banking system lost $620 billion. Six hundred twenty billion dollars. That is a loss no less real than if money had been loaned out to borrowers who d
by NovemberWhiskey 4y ago
>The U.S. banking system lost $620 billion. Six hundred twenty billion dollars. That is a loss no less real than if money had been loaned out to borrowers who defaulted
Uh, no. That's just nonsense. If you lend money to a borrower who defaults, you immediately lose your principal and future interest, subject to whatever recovery rate you achieve. It's an actual, realized loss.
Banks have masses of unrealized losses on their long-dated Treasury holdings, but if you hold those bonds to maturity, you're going to get your principal and your interest.
It should be pretty clear those are Not The Same. The clue is in the word "realized", right?
- peripitea 4y agoThe term "real" is overloaded. The author is clearly using a meaning here that is different from the one you are using, but that is intentional. His usage makes sense in the context of that particular segment of his writing. From an equity perspective, those losses are very real whether they are realized or not.
- chordalkeyboard 4y agoAs Schumpeter predicted, the complexity of our economy is has outstripped our language and consequently our ability to understand it.
- colinsane 4y agonow we’re getting into weird philosophical questions: if every bank had sold these treasuries (realizing the loss) and used the proceeds to buy similar treasuries, their portfolio would be basically the same: same present value (obviously), and same to within a few percent future cashflows. at any layer above the balance sheet, these two worlds are difficult to distinguish. so what makes one “real” and the other not?