Finance 101 for everyone, nutshell version

the S & L fall of the late ’80s, was based on insolvent Savings and loans, that had assets that still had value. and were not leverage to their full value. So now, we have banks that are still viable, but the value of the paper they bought or hold, is less than the face value of the asset or the loan.

the commercial bank failures are due to the underwriters buying and selling low tier loans, like C,D, and E credit levels. these are buyers whom there paper was not even worth the rag content in them and yet the banks are still viable, but no liquid assets to cover day to day operations

RTC (resolution trust corp.) like to 1930’s home loan resolution offered a way for the Federal bank to buy the paper and then manages the buying and selling of existing loans on the books, and then taking the equity and turn them in to collateral to allow the assets for these commercial banks to have cash on hand, know as liquid.

easiest way to correlate this is , when you go into a store and you have a 100.00 bill to cash and their cash on hand is less than what they need to make change.

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