A basic summary of what's going on:If you owe the bank $10, it’s your problem. If you owe the bank $10m, it’s the bank’s problem.
If you and a million others owe the bank $10 each, it’s still your problem – but it’s also the bank’s problem.
If the bank then sells to an investor the $10 you owe, it ought to be the investor’s problem.
But if you have a problem repaying the $10 – and so do a million others – it’s both the investor’s problem and the bank’s problem.
Your problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if neither bank will pay the $10bn it owes the other, it can quickly turn into a $700bn systemic problem.
And if the government then owes the banking system $700bn, it’s your problem.
1 comment:
Thanks for this good explanation for Current Financial Crisis, it's very usefull for me who's just a newbee with financial jargons.
But I don't really understand the last two paragraph, can you explain it more detail ?
"Your problems and the investor’s problems mean the bank now owes another bank $10bn. ....
And if the government ..."
Thanks in advanced,
Sen.
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