question about banks failing?

[Cinderella]

if i had an account with say bank of america...say i owe them 2,000 in my car loan or credit card or whatever....if they close and bail out does the gov pay what i owed on my loan? i dont really understand the whole bail out thing

 

[Johnnybags]

It gets sold off to

if i had an account with say bank of america...say i owe them 2,000 in my car loan or credit card or whatever....if they close and bail out does the gov pay what i owed on my loan? i dont really understand the whole bail out thing

someone else or assumed and they will collect.

 

[Cowlesy]

Your loan is an asset of Bank of America's, and if Bank of America were to be placed into receivership, most likely the government would sell your loan to a buyer who would then assume collection of payments.

 

[Cinderella]

oic...thanks for clearing that up so quickly! and my next question is why would a someone want to buy a debt?

 

[JRuc33]

oic...thanks for clearing that up so quickly! and my next question is why would a someone want to buy a debt?

To make interest on money...

 

[Cinderella]

ahhh...thank yous!

 

[Kludge]

To make interest on money...

Or it could be a larger corporation owning the bank and the debt is owed by a hostile corporation. The bank-owning corporation could then instruct their bank to freeze and call the loan until the hostile corporation gets a capital infusion, goes bankrupt, quickly liquidates assets or anticipates the call and issues bonds to repay the loan before a fraction is called.

*evillaugh*

 

[Cowlesy]

Typically your loan is packaged with piles and piles of other loans into a portfolio of similar loans.

The portfolio may have a face value of $100,000, but if there are increasing amounts of late payments and/or defaults, the portfolio fair value may be written down to say $80,000 because you can't say something is worth $100k when an estimate says you may only collect $80k.

Investors sometimes purchase these books of loans from the banks and assume the risk. They are speculating that the loans will perform better than to what they were marked, and thus they will make a good profit off the purchase.

Bottomline is though your loan never changes even if the ownership of that loan changes hands unless you contact the bank and do some sort of amendment.