Financial Crisis - Where The Money Going
By mokbul
@mokbul (616)
Singapore
October 20, 2008 9:16am CST
Money is like energy. Energy does not destroy, changes form only. Sum of energy remains same always. Similary money does not vanish but changes hands only.
In a layman's thinking - Bank is taking deposit from people like you, me and him, also from governement and other banks. Bank giving out loan to people like you, me and him. I can not pay back the loans and similar like mine amny others can not, so bank collapses. Why I can not pay back the loan, may too high government taxes, high cost of living and so on. Governement baling our buying back the banks with our tax money.
In stock market everyone is selling, stock indexes going down. The person selling is getting back the money may be less than what he has invested, buying tresuary bond, keeping bank, buying gold or keeping in bank. Stock market falling but money is somewhere else.
So it is change of hand only, money remains some where, it has not vanished. How the financial crisis comes in?
1 response
@kpmramani (23)
•
21 Oct 08
Previously, banks are giving loans to the extent of only 60% of the market value of the assets thereby keeping 40% as a cushion. But as competition hots up, the banks become greedy and hence gave loan upto 90% of value of market value. This created this problem. So conservative look will be good for any bank and government. In india, i have noticed that private bankers are charging 100% interest for more risky loans and 20% for reliable loan. But banks are not doing like that. Since it is the public money, the central bank and govt should enact laws for proper percentage of loans on various type of assets.This will make public banking safe and reliable.
