Think of debt as manure.. the more you spread it around over a wider and larger area, it smells the same to everybody who thinks that it’s the normal smell. A bad pile here or there doesn’t get anyone’s attention. It’s not all going bad at the same time. Just like a Madoff scheme, new money coming in covers up for old money..
There is so much manure(debt) out there that is traded around and swapped, it makes a 6 deck blackjack game in Vegas look tempting.
Some of this debt will never be paid back, ever.
Some will be paid off at par, another huge amount will be settled for less than what was originally borrowed..and part will get paid back with greatly inflated dollars.
If there are enough profits from one side, it will offset the losses from the other. Creative accounting and Level 3 assets (off balance sheet)
will bamboozle their books forver.
Fractional reserve system allows for around $10 in loans for $1 on the books. If 10% of the loans go 100% bad, in reality they are wiped out, but by not marking to market, give the illusion that they are solvent and all is well. A loan mod that continues to generate revenue is preferred to foreclosing and admitting to a $200,000 loss.
A $200,000 loss can indirectly affect $2,000,000 worth of loans.
Illusion is comforting to tens of millions which restores confidence in the “system”
Hedge funds, Bear Stearns etc were leveraged 30 to 1. When 3% of their risk went 100% bad, they were wiped out, as were stockholders, employees, and bondholders.
Fiat money is created out of thin air. You pay back old debt with newly created inflationary money…OR you just default.
