why put money in a bank?
DESCRIPTION
Why put money in a Bank?. = . amount money grows over time. i nterest. Banks. $1000. 3%. bank. depositor. $1030. Banks. $1000. $1000. 6%. 3%. borrower. bank. depositor. $ 1060. $1030. Profit: $30. Banks. Option #1 (safe): Only lend to people you know will pay the loan back - PowerPoint PPT PresentationTRANSCRIPT
Why put money in a Bank?
interest amount money grows over time
=
Banks
3%bank depositor
$1000
$1030
Banks
6% 3%borrower bank depositor
$1000
$1030
$1000
$1060
Profit: $30
BanksOption #1 (safe):
◦Only lend to people you know will pay the loan back
◦Opportunity Cost: Will not make a lot of money
Option #2 (risky):◦Loan money to people that may not
pay it back◦Opportunity Cost:
Safety
Banks
10%
2%1000
borrowers
bank1000
depositors
$10,000
$10,200,000
$20,000
$20,200,000$10 mil.
What if…Borrowers do not pay back their
loans?
2008 Economic Crisis
Banks
10%
2%
1000 borrowers
bank1000
depositors
$10,000
$10,200,000
$20,000
$20,200,000$10 mil.
$0
$-10.2 million
$0
Biggest ProblemBanks loan money to new
businessesNew businesses create jobsNo Banks = No Jobs
BANK
BANKS
Who is to blame?
Who is to blame?Borrowers that did not pay back
their loans?The Banks for making bad loans?
Who did the US gov’t help?Borrowers or Banks?
The Government helped the Banks
and millions of people lost their homes
The
2008
Fin
anci
al C
risis
Small Bank
The
2008
Fin
anci
al C
risis
Small BanksBorrowers
The
2008
Fin
anci
al C
risis Investors & Pension Plans
Want something to invest inHousing has always been safe
The
2008
Fin
anci
al C
risis
Small Banks
Borrowers
Big Bank
The
2008
Fin
anci
al C
risis
Big Bank
HomeLoansThe
2008
Fin
anci
al C
risis
Big Bank
Bigger Bank
Global investor
The
2008
Fin
anci
al C
risis
Small bank
big bank
bigger bank
globalinvestors
HomeLoans
insurance
If people pay the house loan…I make moneyIf people do not…insurance will pay me money
The
2008
Fin
anci
al C
risis
globalinvestors
The
2008
Fin
anci
al C
risis
Small Bank
HomeLoans
It is worth NOTHING!It’s a Toxic Asset
HomeLoans
insuranceTh
e 20
08 F
inan
cial
Cris
is
globalinvestors
Bankrupt
The
2008
Fin
anci
al C
risis
insurance
HomeLoans
Small bank
big bank
bigger bank
globalinvestors
BANKS
Can’t buy food
Can’t pay bills
Citizens can’t buy food
Farmer doesn’t have money to run farm = no food
Bankrupt
The
2008
Fin
anci
al C
risis