How many people understand that banks do not make loans out of deposits? For the most part they do not. Instead, for at least 90% of the loan they are merely fabricating the loan money out of thin air. Due to the legalized scam of 10:1 fractional reserve banking, they literally only need to show on their books that 10% of their loans are backed by actual deposits. Therefore if I deposit $15,000 into a bank, the bank can make some magical book entires and subsequently conjurer up and offer someone a $150,000 loan, since this fully meets the legal requirement of 10% being kept on deposit for every 100% that is out on loan. Then they sink their deposits into stocks and TBills and other potentially money making machines intended to increase their returns. They quite literally do not ever make loans out of deposits. It is all a big racket, and your legal agreement to let them hold the home as collateral and then to in addition pay them interest for 15-30 years on money they did not ever really have to begin with is just the "icing on the cake" part of the fractional reserve banking racket. Then if you can't pay they foreclose on you and make it appear as if they are somehow suffering a loss just as you are, when really it is nearly all gain for them either way (whether you pay or they foreclose), since they have put up almost no (ok, 10% perhaps) earnest money (or "consideration" in legal terms) of their own in giving you the loan.
The only way the banks lose money is when they subsequently place the mortgage they just fabricated onto their books as an asset instead of as a debt, which it actually is. Then suddenly they have $150,000 more deposited assets (in the form of your mortgage note) and they can loan out yet more fabricated money. But if they have it on their books at $150,000, and it devalues to only $120,000, yet they have fabricated $1,500,000 out in new loans using the $150,000 initial assumed value to be an asset on deposit, now they have only $120,000 on deposit and legally they can only have $1,200,000 in loans out against it to maintain the 10:1 fractional reserve ratio. Thus they are now $300,000 in debt and they need to rake in $30,000 of real money to make up for (I.E. hide) it. Multiply that by many hundreds to tens of thousands and then millions of house loans that are now worth on average perhaps $30,000 to $50,000 less than they were when issued, and every bank in the USA is clearly in bankruptcy. That is why the law was recently changed, and they can carry their "under water" mortgage debts (ahem, assets) on the books at whatever fictional value they desire, rather than the former legal requirement of having to mark them to market (to their current real market value). Mark to fantasy is the rule now, and without it there would not be a bank left standing. The 10:1 rule is really a 10:1 leveraging of the only real money they started with. If their debt/assets (mortgages) decline by 10% they are wiped out since 10 x 10% = 100%. Did I hear somewhere that the average home in the USA is now worth 30% less than it was in 2006? The banks are then triply bankrupt.
And that is why the Fed gave trillions of dollars to the banks, and nothing (but the claim check on the new debt) to the people.
Last edited by lsayre
on Thu Jul 14, 2011 2:38 pm, edited 1 time in total.