How Banking Works and Crypto Should Take Over

The housing market is always a hot topic in the United States and rightfully so. The house market or real estate makes up a huge amount of the transaction and value in the country. This also applies to many other larger well established countries. With all of that comes lending and banking something few understand to realize how ripped off you're getting.

How It Works

Banks lend out your money to borrowers and earn a rather hefty APR yield on it while giving you a very small fraction of that value that guess what You have to pay taxes on so you're earning even less! Yeah however that makes sense is beyond me and would fall under double dipping as far as I'm concerned.

The real big kicker is the bank doesn't hold on to this loan for years waiting for you to pay it off. Instead they package them up and sell them off to investors a mortgage back securities and making profit removing all risk on their end.

What's about to happen now that Inflation has been running rampant along side of that house prices it means more loan money is now available to banks then ever before. This means more people will have more funds that they can now borrow for housing. You know just keep stacking on the already massive all time debt that everyone has and make them slaves to the system why not.

Stacking For History To Repeat

In 2004 the loan market was allowed to start issuing sub prime loans. Do you recall what happened just 4-5 years later? One of the hardest ever recessions and house markets collapse in which tax payers had to bail out banks to keep them afloat. What did the tax payers get back from all of this... Nothing and instead all that money ended up in the hands of a very few people and did little to nothing to what it was intended for. Instead the government gave them a slap on the wrist and made those companies agree to keep paying money back into the US treasury of which no real details about how much of that could be found or how long that would take place for.

What happened in 2008 was a massive amount of people who had homes without a good background check in terms of finances. These loans often had what is known as a APR adjustable the A is the key here. As the Fed increased rates so did the interest rates on those loans to the point where people couldn't afford them any longer and needed to sell their homes. This caused a flood of homes in the market and a huge price decrease because of it which has taken about 10 years to recover from.

Loans On Crypto

Loans in crypto is a pretty new thing and it's been attempted. However with crypto it's up to the company or person running it to make good choices and to only take on so much risk. What we see in cases like FTX however is bad actors or just flat out incompetence and it all blows up just like the housing market.

There's little currently used as collateral other then primarily NFT assets which are extremely volatile in price. Person A could of had a $100,000 NFT asset which they took a loan out for $50,000 only to have that NFT asset fall to being worth $10,000 and then the lender sitting there wondering why they are no longer paying back their loan. Well that's because the assets not worth getting back and the collateral only covers a very small amount of the loan.

In order for this to really start working other things or collateral need to be taken into account and I wonder when soon we will see a 3rd party platform offer this for things like mortgages and other hard assets.

Posted Using LeoFinance ^Beta