Joe Six-pack borrowed money against his house value and spent it on a nice vacation
His bank sold the loan to Fannie with guarantee
Fannie sold it to the Chinese GOV with guarantee
Joe Six-pack’s house dropped in value and he stops servicing the loan and dumped the house
The Chinese Gov now has a loan that is not performing and sends it back to Fannie
Fannie sends it to the bank
The bank works with other people money and has it own reserve, what does it do?
a) Use its reserve – very unlikely
b) Use people’s deposits – more likely
The latter is guaranteed by the US Gov so it backs the bank liability as promised
Everybody pays Joe Six-pack load
To HarryBosch:
If you multiply the above situation by a million and US Gov goes broke (bankrupt) who so going to guarantee your relative pension or money in the bank?
If there is a depression everybody suffers. If there is super-inflation everybody savings are reduce to 0.
And I totally see myself in the same situation, live bellow my means for a couple of years just to see my savings cut by inflation/falling dollar.
I am saying that in any situation the money wasted by the speculators will have to be paid by the people who were diligent and financially smart.
