| SamuelRSmith said:
You are essentially an insurer, Kasz is paying you a dollar a month for insurance. If his loan fails, you have to pay up half of what's owed. This benefits Kasz, because even if the loan does fail, he will still get atleast half of his money back. If the loan doesn't fail, you will benefit, as you would have profited from the dollar a month. The more likely the loan is to fail, the more Kasz would have to pay you, as you have a greater risk, and the potential dollar a month wouldn't be worth the risk to you (also, the riskier the loan, the more Kasz will worry, so he is willing to pay more for insurance, which is actually far more important in the final price of insurance - how much you think Kasz is willing to pay). |
Ah, that makes sense. The snowballing effect of failed loans in Europe definitely affects the others around the world who hold the loans, then.
Thinking about the core of it, the concept of the loan is meant to yield a larger amount of money than what was invested. This would mean the lendee needs to gain money from actual product value (either directly or indirectly; ex. selling goods) greater than or equal to the total loan (with interest) to be at parity or profitable.
That doesn't seem sustainable on a large scale at all, let alone with all of the complexities involved with loan insurance and many webs of this going on around the world.
The BuShA owns all!
