cookstar

iTrader: (6)

With all this talk of banks loosing money etc, where does the money that's being lost go to?


I'm assuming it is still real money that could someone could buy things with??


Anyone care to explain to someone that doesn't really know what happens at that kind of level.

Cheers

OllyK

I'm guessing it's as a result of the banks loaning money they don't have to people who don't pay it back.

PeteBrant

Twofold, one, banks made investments in repackaged sub-prime mortgages that defaulted. And had simply enourmous, unknown exposure to it. Some had bigger than others. JP Morgan were virtually unscathed, Lehamn Bros were utterly destroyed.

Two under normal circumstances, banks lend to each other to lend to others. For example Bank 'A' borrows from banks 'B at a rate of 3%, Bank 'A' then lends to you at 6%. It makes profit from the extra interest you are paying.

However, with the "credit crunch" banks stopped lending to each other and therefore a big revenue stream dissapeared almost overnight.

Am sure Tel or Fastbloke will have a far more accurate assessment though.

fivetide

iTrader: (1)

That's basically it.

What it means is that banks need to be able to cover a portion of their assets at least (liquidity) at the moment, they need the money to keep liquity so they won't lend to each other.

If they can't do that then they do not want to lend/loan to you either hence the mortgage issues.

With business cutting back and credit being squeezed prices are rising, so inflation is going up as less goods are available. On top of that the usual way to fix inflation is to put up interest rates and take money out of the economy (high rates = less borrowing so less money in circulation) however borrowing has already been cut back and rise for interest rates might just finish the housing market.

The Bank of England that sets rates is in the traditional rock/hard place as there doesn't seem to be much they can do.

Basically!

5t.