Saturday, September 20, 2008

How does the Financial Crisis Happen?

I think a lot of people does not understand why this Financial Crisis derived. Let me identified or describe a circur of this dilemma.

First, A, B & C people go to ABC Bank borrow RM500k loan each. ABC Bank requested them everyone giving RM250k deposit to support the loan. After everything completed, ABC bank compiled this loan amounted to RM1.5 million sell it to DCS Bank and on the same time asking addition loan from DCS Bank. It does not equivelent to RM1.5 million only. ABC Bank will request DCS bank lend about RM2.5million. The RM1.5 million as deposit. Then, DCS bank go to another party do the additional loan again. Final, the deposit RM750k finally can loan out 20 times extra. If everytime succed, that amount loan floating is equal to RM15 million. If anyone in between does not fullfil the loan contract. The last person only eligible collect back RM750k only.
This is a real show now happenning in USA . The above example only highlighted 2 times loan only. Usually the Inestment Bank may do it 5 or 10 times leverage loan to Hegde Funds operators.
Some more is now the original borrower does not aware his loan already sold to unknown person. Who is the ultimatel beneficiary not body can locate it? It can be only 10 person or maybe finally involving more than 20 banks. Every one involved own partial benefit on such deposit.
This is a greater joke but is a fact in this Financial Crisis!!!!!!!!!!!!

1 comment:

3POINT8 said...

Is this really true?
I once saw this video about the concept of money. It states the money in which that that governed by US is not backed by gold, silver, or anything physical. It is backed by loan, the promise of lender to pay back at a later date with interest...