Hello!
I just watched “Buffaloed”- a movie on Hulu… which goes into great detail about debt collectors in America. How they buy debt from banks for pennies on the dollar, and then come after debtors for the full debt making immense profit when the “debt” is repaid.
My question is, why does the bank need to sell the debt?
To whom does the bank owe money too?
I know banks give loans, but where do they get that money?
I know they can make profits off interest, but would that not take YEARSS to do before seeing profits large enough to dish out real cash to borrowers in a newly established bank?
I see how it all just cycles basically but my brain still doesn’t fully comprehend.
Maybe I’m asking for too much, and if I am and nobody has the time to explain- maybe someone could point me into the direction of educational material online because I’m not finding much on Google that doesn’t give me a headache because there is oftentimes a lot of financial jargon.
And before I get roasted, I went to a sh-t public school system deep in the rural south and I am still young, so please excuse me for my very very shallow understanding of all of this.
In: 5
1. Banks loan money to people who sometimes don’t pay it back. It’s too much hassle for the bank to try and get these small debts back but they can sell them on to someone who can be bothered at a large discount. The banks get something and get rid of the debt on their books and a middleman has an opportunity to make money chasing it down perhaps not having to keep as good a reputation as the bank.
2. Theoretically the banks take in deposits and loan that money out. In fact they may lend out more than the actual assets they hold or have taken. But its all electronic book keeping really. They only have to be able to cover a proportion of deposits in case of trouble which is why there is a problem if everyone suddenly asks for their money back. This is backed and regulated by their central bank. Though they may not get much interest from on loan ,they make money from the fact that they loan so much. Its not the interest that they take in that they loan out as such.
Hope , if I’m accurate, that helps.
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