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Yeah, I agree it has an interest in it. It's just I can't name what the bank's asset actually is. What should go on the balance sheet? It gave cash to the borro

Yeah, I agree it has an interest in it. It's just I can't name what the bank's asset actually is. What should go on the balance sheet? It gave cash to the borrower (ok, I know it's more complicated than that, but for the sake of argument let's pretend it gave a bundle of Bens), so it credits that asset by $200k. What does it debit? Not a share in a house. A promise to pay, sure, but that's just notional. What is the asset in reality? (Hopefully I'm being clear that I'm not asking what GAAP says. I mean what does the bank have that it didn't have before?) EDIT: this problem doesn't arise with a non-recourse mortgage, where the bank's asset is pretty clearly a share in the house. If the house burns down, the bank loses its money.

PaulDavisThe1st 3y ago
> It's just I can't name what the bank's asset actually is The asset is a debt instrument, with everything implied by the specifics of that instrument.
- geye1234 3y ago
  Sure, I know what the accounting says. I just don't know what it means. If I own stock in Microsoft, it means I own a percentage of all its assets (real estate, intangibles, etc), along with a right to a percentage of its revenue streams. Plus I run the risk of my asset being worthless if Microsoft fails. So I know what that means. Similarly, if I own Microsoft bonds, it means I have a right to a fixed revenue stream from it, and further, can claim a proportion of its assets if it stops paying me. So I can be said to 'own' a proportion of its assets, insofar as I have certain rights over them. And again, I run the (smaller) risk of my asset being worthless if Microsoft fails. If I have lent Bob money on a non-recourse basis to buy a house, it's a similar story: I have the right to a fixed revenue stream from Bob, and can claim his asset if he stops paying me. So again, I can be said to own a proportion of the house, less whatever I'd pay him if I seized it. And again, I run the risk of the house burning down, etc etc. In all three of these examples, my balance sheet asset refers to something real. But if I've lent Bob money on a full-recourse basis, what is the asset? Not the house -- we've established that. Not the cash -- the cash is gone. So what is the debt instrument in my balance sheet based on?
  - PaulDavisThe1st 3y ago
    https://www.investopedia.com/ask/answers/08/nonrecourse-loan-vs-recourse-loan.asp https://www.investopedia.com/ask/answers/08/nonrecourse-loan... The full-recourse loan instrument gives you access to any other assets Bob may have (including future assets such as wages).
    - geye1234 3y ago
      But these 'assets' are entirely notional. They may not really exist. They may start existing at some point in the future, or they may not. How can I claim ownership over something notional?
      - PaulDavisThe1st 3y ago
        How does anyone ever end up with a claim that allows garnishing future wages (that do not exist and are not guaranteed to exist at the time the loan is issued)? The whole point of a loan (of any kind) is that it comes with risks. Different types of loans have different risks, and allow ownership claims of more or less things distributed in time and space). But no loan is risk-free, and so the idea that a loan provides an ownership claim of something that only notionally exists doesn't seem particularly strange.
        geye1234 3y ago
        I understand that. But if I own something that's only notional, it would seem to be saying that I own something that doesn't exist. Which is impossible. Obviously I have claimed a right to $200k of future revenue streams Bob is able to provide me with (plus interest). So ISTM that the 'asset' I would claim to own is Bob himself. I don't own a house or company stock that provides me future revenue streams; I would claim to own a share in a person that provides me with the same. This seems the only logical way to understand the situation.
        PaulDavisThe1st 3y ago

PaulDavisThe1st 3y ago

> It's just I can't name what the bank's asset actually is The asset is a debt instrument, with everything implied by the specifics of that instrument.

geye1234 3y ago
Sure, I know what the accounting says. I just don't know what it means. If I own stock in Microsoft, it means I own a percentage of all its assets (real estate, intangibles, etc), along with a right to a percentage of its revenue streams. Plus I run the risk of my asset being worthless if Microsoft fails. So I know what that means. Similarly, if I own Microsoft bonds, it means I have a right to a fixed revenue stream from it, and further, can claim a proportion of its assets if it stops paying me. So I can be said to 'own' a proportion of its assets, insofar as I have certain rights over them. And again, I run the (smaller) risk of my asset being worthless if Microsoft fails. If I have lent Bob money on a non-recourse basis to buy a house, it's a similar story: I have the right to a fixed revenue stream from Bob, and can claim his asset if he stops paying me. So again, I can be said to own a proportion of the house, less whatever I'd pay him if I seized it. And again, I run the risk of the house burning down, etc etc. In all three of these examples, my balance sheet asset refers to something real. But if I've lent Bob money on a full-recourse basis, what is the asset? Not the house -- we've established that. Not the cash -- the cash is gone. So what is the debt instrument in my balance sheet based on?
- PaulDavisThe1st 3y ago
  https://www.investopedia.com/ask/answers/08/nonrecourse-loan-vs-recourse-loan.asp https://www.investopedia.com/ask/answers/08/nonrecourse-loan... The full-recourse loan instrument gives you access to any other assets Bob may have (including future assets such as wages).
  - geye1234 3y ago
    But these 'assets' are entirely notional. They may not really exist. They may start existing at some point in the future, or they may not. How can I claim ownership over something notional?
    - PaulDavisThe1st 3y ago
      How does anyone ever end up with a claim that allows garnishing future wages (that do not exist and are not guaranteed to exist at the time the loan is issued)? The whole point of a loan (of any kind) is that it comes with risks. Different types of loans have different risks, and allow ownership claims of more or less things distributed in time and space). But no loan is risk-free, and so the idea that a loan provides an ownership claim of something that only notionally exists doesn't seem particularly strange.
      - geye1234 3y ago
        I understand that. But if I own something that's only notional, it would seem to be saying that I own something that doesn't exist. Which is impossible. Obviously I have claimed a right to $200k of future revenue streams Bob is able to provide me with (plus interest). So ISTM that the 'asset' I would claim to own is Bob himself. I don't own a house or company stock that provides me future revenue streams; I would claim to own a share in a person that provides me with the same. This seems the only logical way to understand the situation.
        PaulDavisThe1st 3y ago