The Credit Crunch, defined

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DaveB replied

30 September 2008, 12:45
Originally posted by TazMaN View Post

Courtesy of the FT:-

"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 now it’s also the bank’s problem.

If the bank then sells to an investor some of 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 – and the bank insured the investor against your problem, then it’s both the investor’s problem and the bank’s problem.

Your problems and your neighbours’ problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if banks can’t or won’t pay the $10bn they owe to other banks, it’s very quickly a $700bn systemic problem.

And if the government then owes the banking system $700bn, it’s your problem."

Cracking

But shouldn't the last line read :

"And if the banking system then owes the government $700bn, it’s your problem."
Leave a comment:
ChimpMaster started a topic The Credit Crunch, defined

30 September 2008, 12:37
The Credit Crunch, defined

Courtesy of the FT:-

"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 now it’s also the bank’s problem.

If the bank then sells to an investor some of 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 – and the bank insured the investor against your problem, then it’s both the investor’s problem and the bank’s problem.

Your problems and your neighbours’ problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if banks can’t or won’t pay the $10bn they owe to other banks, it’s very quickly a $700bn systemic problem.

And if the government then owes the banking system $700bn, it’s your problem."
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