Make Poor Business Decision? Get a Bailout
I read a question regarding the bank bailouts and thought it appropriate to use this opportunity as a teaching experience. The question is, “If the bank bailouts did not go through, who would have taken on the bad debt?”
When banks make loans to business (say auto dealers – they pay floor plan charges on each auto on their lot) If the car company went bankrupt, the bank would get pennies on the dollar in bankruptcy court. Same with banks making bad mortgage loans:
1. The bank knew better & did it anyway
2. The bank forecloses on the loan and if the homeowner filed bankruptcy, the bank gets pennies on the dollar
3. If the banks had too many bad loans, it shows the bank has poor business experience and they would file bankruptcy. Those they sold those “toxic” assets to would get pennies on the dollar.
Would you buy anything “toxic”? What does that say about your intelligence verses the bank’s intelligence?
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