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Author Topic: Who will buy the debt if banks collapse  (Read 28125 times)

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Baggyarse

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Who will buy the debt if banks collapse
« on: February 13, 2015, 11:22:44 am »

Hi,

There is a lot of credible talk about an another GFC possible financial collapse happening toward the end of this calender year. Some of the predictions say it will be massive and make the previous GFC look like a quarterly correction. To the average man it may look something like the days of the great depression. Traditionally financial collapses precede wars. My question relates to the predicted financial collapse. If we had one where major banks are collapsing beyond the governments ability to prop them up what happens to the debt they own. Does it become owned by their financiers, would they sell their debt in a bid to reduce investor losses? It would be great if the debt just went away and we all had our debt cleared and were able to own whatever property with whatever equity we had in it, but I doubt this scenario would come to pass.
What are your thoughts on this?
« Last Edit: February 13, 2015, 11:26:35 am by Baggyarse »
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Geek

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Re: Who will buy the debt if banks collapse
« Reply #1 on: February 13, 2015, 11:37:55 am »

You still owe the debt if you have a loan from a bank that fails.  Typically in such situations the bank is bought by another bank or the government becomes a receiver.  If the latter occurs, or the bank is wound down like a normal bankruptcy, then the proceeds from loans would be used to pay off depositors and other creditors.

If anything efforts to collect on your loan may be more aggressive than if the bank were still solvent.
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Slow learner

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Re: Who will buy the debt if banks collapse
« Reply #2 on: February 13, 2015, 11:43:09 am »

That's pretty interesting, we're did you get your info from
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Geek

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Re: Who will buy the debt if banks collapse
« Reply #3 on: February 13, 2015, 12:15:30 pm »

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That's pretty interesting, we're did you get your info from

I work in the industry and have done work around bank failures as well.
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Baggyarse

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Re: Who will buy the debt if banks collapse
« Reply #4 on: February 13, 2015, 12:39:20 pm »

My thoughts are that if the bank collapses dramatically and fast then the legally binding contract becomes null and void since the entity no longer exists the remaining living entity (Me) then would own the property. If there is time for the bank to organise then I'm sure if you look at the contract it would have the ability to recall its debt immediately if it needed. If you could not settle immediately it would then have something tangible to sell meaning, a share of your property. I think the more I look into this it could be more of a legal issue than a financial one. Anybody got experience with contractual law.
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camo-collector

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Re: Who will buy the debt if banks collapse
« Reply #5 on: February 13, 2015, 02:12:13 pm »

We could all do it Greek style and refuse to pay & then end up a banana republic. But really your house would be repossessed and if no one purchased it from the bank it would end up derelict just like in North America. 
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Geek

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Re: Who will buy the debt if banks collapse
« Reply #6 on: February 13, 2015, 03:45:28 pm »

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My thoughts are that if the bank collapses dramatically and fast then the legally binding contract becomes null and void since the entity no longer exists the remaining living entity (Me) then would own the property. If there is time for the bank to organise then I'm sure if you look at the contract it would have the ability to recall its debt immediately if it needed. If you could not settle immediately it would then have something tangible to sell meaning, a share of your property. I think the more I look into this it could be more of a legal issue than a financial one. Anybody got experience with contractual law.

Your loan can be sold even without there being a bank failure, so your idea doesn't work.  Basically in a bank failure all the loans get sold at the same time.
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Baggyarse

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Re: Who will buy the debt if banks collapse
« Reply #7 on: February 13, 2015, 04:26:01 pm »

Geek, are you suggesting the legally binding contract between myself and the bank isn't worth the paper its written on?

Doesn't come as a surprise I suppose but it still sounds like I have a case under constitutional law perhaps.
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OzHippy

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Re: Who will buy the debt if banks collapse
« Reply #8 on: February 13, 2015, 04:43:02 pm »

Banks typically lend out 90% more money than what they have. eg if they get $10million they they would lend out $90million.  If you borrow money for a house the bank gets that money by borrowing from international lender at a cheaper rate, than what they give you.   Hence if there is panic and a run on the bank they would foreclose, as they have less than 10% of money owned to depositors.

Most of modern society works in debt, so if you have debt on credit card and try and purchase something after a collapse they would refuse to give credit.  Just about all gov in the world are in debt so the gov can no longer pay wages and welfare/pensions  immediate chaos. 

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Lots of european banks now have negative interest rates - ie. the big money lenders like IMF and European Central Bank are trying to force banks to lend more money to stimulate a dying economy, but they are up to their eyeballs in bad loans so rather just leave the money in the 'central' bank and take the loss.  Situation is madness and about to fail.

"It's a bit jaw-dropping. It all makes you wonder: Do we really have a functioning global banking system when rates are essentially zero?" asked Colas.  We are  in uncharted waters with negative interest rates.
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Rugglesby

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Re: Who will buy the debt if banks collapse
« Reply #9 on: February 13, 2015, 06:28:48 pm »

Hey guys, it is too complex for me to even think about, I was an international currency specialist in the 80s, predicting exchange rates between various currencies many months in advance.All I can say is nothing is real, it is all speculation and perception. If you owe a million to the bank secured by a 2 million dollar property, and the market fails, you owe a million on a property worth $100,000 you would probably walk and go bankrupt. So if everything the banks advance money on goes belly up, and if currencies are unreliable, it's anybodies guess. I had a lot of shares and broke even because I got rid of most just before the 87 crash, saw it coming a mile away, was immune to the GFC and at the moment, I am just sitting on my hands. Would not touch anything.
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Geek

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Re: Who will buy the debt if banks collapse
« Reply #10 on: February 13, 2015, 08:29:24 pm »

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Geek, are you suggesting the legally binding contract between myself and the bank isn't worth the paper its written on?

Doesn't come as a surprise I suppose but it still sounds like I have a case under constitutional law perhaps.
Absolutely not.  It is worth the amount you borrow.  What I am saying is the idea that it can't be transferred by the bank to someone else is incorrect.  The bank can sell the note to another bank and in the instance of a bank failure the note will be sold.
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Geek

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Re: Who will buy the debt if banks collapse
« Reply #11 on: February 13, 2015, 08:32:28 pm »

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Banks typically lend out 90% more money than what they have. eg if they get $10million they they would lend out $90million.  If you borrow money for a house the bank gets that money by borrowing from international lender at a cheaper rate, than what they give you.   Hence if there is panic and a run on the bank they would foreclose, as they have less than 10% of money owned to depositors.

Most of modern society works in debt, so if you have debt on credit card and try and purchase something after a collapse they would refuse to give credit.  Just about all gov in the world are in debt so the gov can no longer pay wages and welfare/pensions  immediate chaos. 

You are not allowed to view links. Register or Login
Lots of european banks now have negative interest rates - ie. the big money lenders like IMF and European Central Bank are trying to force banks to lend more money to stimulate a dying economy, but they are up to their eyeballs in bad loans so rather just leave the money in the 'central' bank and take the loss.  Situation is madness and about to fail.

"It's a bit jaw-dropping. It all makes you wonder: Do we really have a functioning global banking system when rates are essentially zero?" asked Colas.  We are  in uncharted waters with negative interest rates.


Well, the rates aren't zero for a regular borrower.
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OzHippy

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Re: Who will buy the debt if banks collapse
« Reply #12 on: February 13, 2015, 09:01:26 pm »

No banks are making record profits.  They just about get the printed money that they lend to you for free from central banks.
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dtb

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Re: Who will buy the debt if banks collapse
« Reply #13 on: February 13, 2015, 09:04:27 pm »

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You are not allowed to view links. Register or Login
Banks typically lend out 90% more money than what they have. eg if they get $10million they they would lend out $90million.  If you borrow money for a house the bank gets that money by borrowing from international lender at a cheaper rate, than what they give you.   Hence if there is panic and a run on the bank they would foreclose, as they have less than 10% of money owned to depositors.

Most of modern society works in debt, so if you have debt on credit card and try and purchase something after a collapse they would refuse to give credit.  Just about all gov in the world are in debt so the gov can no longer pay wages and welfare/pensions  immediate chaos. 

You are not allowed to view links. Register or Login
Lots of european banks now have negative interest rates - ie. the big money lenders like IMF and European Central Bank are trying to force banks to lend more money to stimulate a dying economy, but they are up to their eyeballs in bad loans so rather just leave the money in the 'central' bank and take the loss.  Situation is madness and about to fail.

"It's a bit jaw-dropping. It all makes you wonder: Do we really have a functioning global banking system when rates are essentially zero?" asked Colas.  We are  in uncharted waters with negative interest rates.


Well, the rates aren't zero for a regular borrower.


pretty darn close to it in some countries (japan and us), negative in Germany....
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dtb

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Re: Who will buy the debt if banks collapse
« Reply #14 on: February 13, 2015, 09:12:58 pm »

if  bank goes bust, in this country at least, generally it will be bought buy another.  Unlikely one of the 4 majors will go bust in anything other than complete shtf IMO, so it will be a smaller bank. If that is the case, the balance sheet of said small bank will just be sold to a major.  so sorry, if you have a mortgage with said bank it is likely that it will be sold to another bank and you will still have to pay it out.

If in complete shtf scenario however, this I believe will be a different story. I think if you have debt, have enough cash so that you can continue servicing that debt in the interim time between things going over the cliff and going splat at the bottom.  Once things go splat I don't think anyone will care if you pay back  mortgage or not, banks are likely not to be around anyhow - there will be bigger issues to deal with, such as basic survival. 

I hold a senior role in n aust bank, sit on various committees and 'emergency teams' and am in charge of pulling together a lot of the stress tests and shtf plans for the bank.... this is all required by the regulator (APRA).  I can tell you tht if we ever have to enact them, it is not likely that I will be going to work. The scenarios we have to plan for are rioting in the streets scenarios - I am well on my way to my bug out spot.

Long way of saying, make sure you can service your mortgage when times get a little tough,  If you can last out to complete shtf no one is likely to care if you pat back your debt or not.
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