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05/18/2012
The Purpose of Banks
Banks fullfill a very important function in society, by storing money securely, paying interest for investors and making loans to debtors. It is especially the middle class and the poor who profit from stable banks. A rich man is able to buy a factory as an investment, mere mortals cannot and have to rely on banks.
05/14/2012
Why One Should Not Buy Bank-Stocks
Banks are investing money, therefore their stocks are even more indirect and inscrutable than normal stock funds.
05/09/2012
USA: Paid By The Taxpayer
_The U.S. government was not an example for fiscal responsibility for a long time (maybe never), but the Obama administration has - despite being in a recession - set new records for spending money on questionable things.
05/05/2012
The Government and Subprime-Mortgages
Would government regulation have helped?
04/28/2012
Why Funds Cannot Work in the Long Run
An investment-funds promises to earn money on the stock exchange without caring about the companies in which it is invested and without risk - unfortunately that is just an illusion.
04/24/2012
How the Central Banks are Manipulating the Price of Gold
The German gold-expert Walter Eichelburg is forecasting a price of $20,000 per ounce.
05/25/2012      share:deru
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The Purpose of Banks Modern Shamans

Bullet Loans

This text was excerpted from: Moderne Schamanen, Roland Seuhs, BoD-Verlag, 2011 (de)
      chapter 23.3: "Endfällige Kredite mit „Ansparoption“"

One of the most dangerous (and until a short time ago very popular) banking "products" were so-called "bullet loans", a loan where the rates are not used for repayment, but for an investment funds which supposedly can be used to pay back the loan at the end of the loan term.

In theory this construction is favorable for the debtor, because the expected return of the investment funds is higher than the interest payed for the loan and the investment funds is a "secure investment".

Even without any knowledge about investment funds and returns one should try to use simple logic: When a bank really knows about a secure investment with a higher return, why shouldn't the bank invest in it instead giving a loan to the debtor?

The only thing this construction is useful and that is fraud.

There is no other way. Either the bank truely believes that the investment is safer and brings more returns than the loan - in that case the bank is giving money away, what is only conceivable if the bank employee is colluding with the debtor and is betraying his employer. The much more probable variant is of course that the bank does not believe that the investment is not safer and/or bringing more returns - in that case the debtor is betrayed because the product was sold to him under false pretenses.

During the crash preceding the Great Depression 1929, many livelyhoods were destroyed because people have speculated on credit. As dangerous as this practice may be, it can work if you really know a better investment than the bank does.

However when you get the investment from the same bank where you get the loan, that becomes impossible. The bank must hold the opinion that the investment is worse, otherwise it would not give you the loan.

series: Modern Shamans
1Short summary of Keynesianism
2The central bank and the economic crisis
3The gross domestic product (GDP)
4Manipulation of the market basket and economic growth figures
5Economic Growth and Wealth
6Why the Banks Are Unstable
7Inflation and Deflation
8The Course of a Typical Inflationary Bubble
9John Law's Prototype of a central bank: 1716-1720
10The forgotten crisis: USA 1920-1921
11Summary of the Great Depression
12The Stagflation of the 1970s
13The crisis in Japan since 1990
14The Dot-com Bubble
15What Can be Learned from Past Crises
16Why there cannot be a perpetual boom
17Immoral Temptations
18Short Summary of the Bernie Madoff Scandal
19The Central Bank as "Bad Bank"
20Can we lie ourselves out of the crisis?
21How the Stock Exchange Works
22Why Funds Cannot Work in the Long Run
23The Government and Subprime-Mortgages
24Why One Should Not Buy Bank-Stocks
25The Purpose of Banks
26Bullet Loans

Moderne SchamanenRoland Seuhs10/27/2011de
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