this post was submitted on 29 Aug 2024
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The bankruptcy scenario is correct but the first part isn't: you don't have X shares as collateral that you can liquidate. Instead, you have collateral to cover sum Y.
As long as the collateral contract covers enough stock positions the bank won't lose.
That said all of this is assuming standard contracts. If y bank wrote "0% interest and instead 50% of the revenue growth of Twitter" then this would be an easy way to lose money.
Haven't heard of a stupid banker yet, though, so what would the chances be?
I mean, the 2008 housing market was done by greedy and stupid bankers.
Who also made massive profits.
Stupid? It was a masterstroke by them.
They made a fortune, then governments had to throw more money at them or risk a complete economic crash.
After the crash, people were poorer, and credit was cheap, so they came to banks for loans and financed everything more and more, handing even more to the financial sector.
Houses temporarily crashed in price, but the poorest were too risky for banks to lend to, leading to houses being bought up en-mass by people who were already wealthy.
Bankers in 2008 were greedy, yes. But certainly not stupid.
IMO they should not have been bailed out. For most people the economy has already failed and it should be allowed to crash fully so that it can be rebuilt and restructured in full. That might sound extreme but I don't see many other alternatives. Something has to be sacrificed for the sake of the vast majority of people and the real economy and I think it should be the financial sector.
I mean, I feel like the banks that failed still should have done some research on what they were putting their money into. https://en.m.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_during_the_Great_Recession
Ah! Thank you for the explanation