why put money in a bank?

Why put money in a Bank?

interest amount money grows over time

=

Banks

3%bank depositor

$1000

$1030

Banks

6% 3%borrower bank depositor

$1000

$1030

$1000

$1060

Profit: $30

BanksOption #1 (safe):

◦Only lend to people you know will pay the loan back

◦Opportunity Cost: Will not make a lot of money

Option #2 (risky):◦Loan money to people that may not

pay it back◦Opportunity Cost:

Safety

Banks

10%

2%1000

borrowers

bank1000

depositors

$10,000

$10,200,000

$20,000

$20,200,000$10 mil.

What if…Borrowers do not pay back their

loans?

2008 Economic Crisis

Banks

10%

2%

1000 borrowers

bank1000

depositors

$10,000

$10,200,000

$20,000

$20,200,000$10 mil.

$0

$-10.2 million

$0

Biggest ProblemBanks loan money to new

businessesNew businesses create jobsNo Banks = No Jobs

BANK

BANKS

Who is to blame?

Who is to blame?Borrowers that did not pay back

their loans?The Banks for making bad loans?

Who did the US gov’t help?Borrowers or Banks?

The Government helped the Banks

and millions of people lost their homes

The

2008

Fin

anci

al C

risis

Small Bank

The

2008

Fin

anci

al C

risis

Small BanksBorrowers

The

2008

Fin

anci

al C

risis Investors & Pension Plans

Want something to invest inHousing has always been safe

The

2008

Fin

anci

al C

risis

Small Banks

Borrowers

Big Bank

The

2008

Fin

anci

al C

risis

Big Bank

HomeLoansThe

2008

Fin

anci

al C

risis

Big Bank

Bigger Bank

Global investor

The

2008

Fin

anci

al C

risis

Small bank

big bank

bigger bank

globalinvestors

HomeLoans

insurance

If people pay the house loan…I make moneyIf people do not…insurance will pay me money

The

2008

Fin

anci

al C

risis

globalinvestors

The

2008

Fin

anci

al C

risis

Small Bank

HomeLoans

It is worth NOTHING!It’s a Toxic Asset

HomeLoans

insuranceTh

e 20

08 F

inan

cial

Cris

is

globalinvestors

Bankrupt

The

2008

Fin

anci

al C

risis

insurance

HomeLoans

Small bank

big bank

bigger bank

globalinvestors

BANKS

Can’t buy food

Can’t pay bills

Citizens can’t buy food

Farmer doesn’t have money to run farm = no food

Bankrupt

The

2008

Fin

anci

al C

risis