SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Mish's Global Economic Trend Analysis
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Claude Cormier who wrote (100740)8/12/2009 3:44:43 PM
From: russet2 Recommendations  Read Replies (3) of 116555
 
The bank had a loan asset worth $500,000 with the house as collateral. For every dollar of assets the bank has on its balance sheet it can loan out $10 (before the crash one short year ago some were loaning out $40 for every dollar in assets)

When the bank sells the foreclosed house, it must write down the loan asset to the cash it sells the house for. If it only gets $200,000 for the house $300,000 in assets have disappeared so in response to this the bank must lower its maximum loans out by 10 x $300,000 or $3 million. Multiply this by the number of foreclosures and writedowns and in theory you get money supply contraction.

So you can have two sources of potential money supply contractions since last year. One is the banks changing their loan to asset ratio from 40 to 1 to 10 to 1, and another by the foreclosed assets being worth less than the original loan once the asset is sold.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News