The Epic American Credit and Bond Bubble Laboratory Message Board

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To: Skeeter Bug who wrote (106121)	11/2/2009 9:25:11 PM
From: SI Brad	of 109991

Brad, the houses used as collateral count as assets for the bank (to offset liabilities, right? i'm certain banks leverage - something you seem to be saying they do not do - unless i misunderstand your point. The house does not count as an asset on the balance sheet, because the bank does not own the house. It owns the loan, and the loan is the bank's asset. If the bank forecloses, then the house replaces the loan as the asset. Yes banks use leverage, just like you can use margin in a brokerage account to buy more stock than your original cash would allow. But you have to pay interest on the margin amount. It's not free money, and it doesn't come out of thin air. The banks just get to pay a lot lower interest rate (e.g. 0.10% on checking deposits)