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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Freedom Fighter who wrote (218210)2/1/2003 3:44:09 PM
From: Knighty Tin  Read Replies (2) of 436258
 
Wayne, Here is where your logic breaks down: If I borrow $10 from a bank, the bank now carries an asset of $10. On which it can play $100 of derivatives for a 10% margin. So, by leveraging their assets, they are much larger risk than my $10 would lead you to suppose. As long as they win on the derivative trade, they are in fine shape. But if I default at the same time the derivatives run agains them, even in a minor way, hello Great Depression.

Now, just to throw gasoline on this fire, I'm a much better credit than the great majority of bank loans.
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