DiscussWorldIssues - Socio-Economic Religion and Political Uncensored Debate - View Single Post - US house prices in free-fall

**ssupermegatone** · 03-25-2008, 06:14 PM

Assuming banks have money to loan. Remember of their total loan amounts they have to have a certain percentage of assets on hand. Many banks were relaying on property based assets to maintain that percentage and ass the value of those assets goes down the amount of money they can legally loan also goes down.

This causes a liquidity crisis as banks can no longer legally make new loans and in fact must try to sell off existing loans which they no longer have assets to cover. It might be hard for them to find willing buyers at reasonable prices making it hard for them to originate new loans. This is the trap Japanese banks found themselves in during the early 1990's.

03-25-2008, 06:14 PM	#18
ssupermegatone Join Date Oct 2005 Posts 514 Senior Member	Assuming banks have money to loan. Remember of their total loan amounts they have to have a certain percentage of assets on hand. Many banks were relaying on property based assets to maintain that percentage and ass the value of those assets goes down the amount of money they can legally loan also goes down. This causes a liquidity crisis as banks can no longer legally make new loans and in fact must try to sell off existing loans which they no longer have assets to cover. It might be hard for them to find willing buyers at reasonable prices making it hard for them to originate new loans. This is the trap Japanese banks found themselves in during the early 1990's.
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