Paul Cockshott
> Against whom to banks speculate when they guarantee loans?
I want to take over IBM. I go to the bank and request that they promise to
give me a loan if I get some other people to go along with me in my
takeover. I pay an interest rate on a loan that I might not even use. The
bank does not have to keep any reserves for this loan.
The bank is gambling that I will not need the loan or that it will be
profitable if I do take on the loan. This behavior is speculative. The
potential source of profit comes from me. I am speculating that I can pull
off the deal.
> What assets do they need to cover it?
Banks have reserves to cover their outstanding loans. They do not have
reserves to cover all their so-called off-the-books activities. If a
fraction of the claimants come upon the bank at once, it would have to
fold.
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Michael Perelman
Economics Department
California State University
Chico, CA 95929
michael@ecst.csuchico.edu
530-898-5321
916-898-5901 fax