Understand the money and machinery behind the headlines.
The week’s real story wasn’t crude itself. It was how an energy shock became an inflation, central-bank and bond-market problem.
A central bank can cool demand.It cannot produce a barrel of oil.
File photograph: Richard J. Brunson · U.S. Navy · December 2004
Securitization does not turn bad loans into good loans.
Securitization is not a magic trick that turns risky loans into safe bonds. It is a legal and cash-flow machine that moves assets into a financing vehicle, raises money from investors and turns one stream of payments into claims with different priorities.
A bank does not have to run out of money to run out of room.
A bank can have deposits, cash and willing borrowers and still decide it cannot — or should not — make the next loan. The reason is that funding the loan and having enough capital to support the enlarged balance sheet are two different things.
In Lay Terms explains the money and machinery behind the headlines. Founded and edited by Ithran Olivacce, with a career inside institutional finance.