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To: Toddsterpatriot
Err, I beg you not to help me. lol.

Banks do not need to have anything to open a loan. Money is the debt of a bank. When a bank opens a loan, it simply offers to pay all the drafts of the lendee, with its own IOUs, which everyone else will regard as money.

In clearing with one another, they will cancel out all their mutual offsetting IOUs within a given time window, and then transfer other assets for net movements (securities mostly).

The difficulty for the bank is not how to fund a loan, but whether it is worth the risk, doing so. It must pay its own creditors on the nail. Will it be paid on the nail by the man it lends to? If it is, no problem at all. If it isn't, problem.

People can stop accepting its IOUs as money any time they please. That is exactly what happened to Bear. People said, en masse and at all at once, "that's very nice, but I'd like to be paid in IOUs drawn on someone else if you please, and by the end of the day."

214 posted on 05/01/2008 4:28:35 PM PDT by JasonC
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To: JasonC
Banks do not need to have anything to open a loan.

Good luck with that! LOL!

215 posted on 05/01/2008 5:34:06 PM PDT by AndyJackson
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To: JasonC
Banks do not need to have anything to open a loan

I don't know what opening a loan means (other than the paperwork that says the borrower will pay back the loan about to be made). When the bank actually makes the loan, it writes out a check for real money against real cash on deposit that will get withdrawn by the the federal reserve's clearing house when that check hits another banks inbox. If your bank does not have the money on deposit for that check, a lot of very nasty things start happening (lawsuits and forensic audits by Justice, your bank gets closed down, folks go to jail for fraud). Even Toddster and I are apparently in agreement on that particular fact.

221 posted on 05/02/2008 5:59:16 AM PDT by AndyJackson
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