If you own assets and you use these asset as collateral so you can borrow money at say 3% interest and then you lend money out to customers at say 6%. If your customer cannot pay his loan and his assets are worth much less than the money you lent them how do you pay back the money you borrowed when your own assets are worth much less?

You see the problem, most banks borrow using tier 1 cash to lend money out however what happens when the tier 1 banks assets collapse in value? You have a totaly unworkable situation right throughout your lending system. Without the banks getting more cash to lend and to go about their business it doesnt matter what the assets are worth cause without liquidity the banks cannot go about their business which is to lend to businesses and consumers.

Without these cash injections from the government you will be left with a system that wont or cannot lend to anyone. Eventually when the situation stabilizes the assets will begin to inflate in value provided the whole system does not collapse.

barrrrrr, buzzer says your wrong. US will partialy nationalise banks and insurance co's especially those that can destroy other companies and destory other peoples wealth. Government has decided to preserve wealth and encourage keeping those affloat which probably dont deserve it. Why ? cause thats what England is doing.

They have no idea if it will work but they will find out in around twelve months.

Andrew has an interesting style towards investing that I respect, a realistic one. The interview on buying stocks below a10 dollars was great.
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