Kev

i thought it is the reason of rate of return.
: m2 i$ r1 |4 j- \CDs could have different ratings, AAA -> F,
. @3 D- O$ z% J- d4 {more risky ones would have higher premium (interest rate) as a compensation for an investment.; F5 }3 {) L# O. n& o! a, A$ o  F
main reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,
# n" H" ?2 t' G/ h+ ~9 I. h4 \5 Kin other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.
  S  m# \$ U+ P' }Also, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.
* X% y" ~& I2 q$ Wsimilar to bonds, CDs trading in the secondary market have different value at different times,
9 I# [* M; r; S; `normally the value is calculated by adding it's principle and interest.
  r2 g6 F1 }" P% @/ x! Deg. the value of the mortgage+the interests to be recieved in the future. ) S5 f# w0 D3 r8 A/ F0 }" Z* p$ t
banks who sell the CDs, could enjoy a few benefits like, the present value of cash and passing the risk of holding a debt to another party.. O. J- V6 g* p( `% z9 U

: p7 o& o! _% @+ Y1 w3 Qim not quite sure if the multiplier effect does really matter in this case.
3 U( x+ i+ \3 E& v5 K2 f  iin stock market, it's the demand and supply pushing the price up/downwards.
& v2 q* ~) B/ J9 [3 mFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,
0 C6 a& c2 g( N) l- N" xA's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.
  H6 K1 q# E  `& l% H3 K9 }5 LThe capital loss that ppl suffer nowadays, i believe, most of them does not really suffer a real $ lost yet as long as they dont sell their securities. : E  ]. h, ~. D6 \- b9 q$ x
but the value of their assets did really drop significantly.1 q2 {) c( w- a$ T; t* I* s

. h4 n. H# V/ t- T[ 本帖最後由 Kev 於 2008-10-8 07:26 PM 編輯 ]

Kev

原帖由 balachiDavis 於 2008-10-8 04:09 PM 發表 http://www.26fun.com/bbs/images/common/back.gif
$ f% K% E2 z, r$ n6 U4 RRefer to last example,( v' q9 r$ w" U1 k
that means bank A have no money because we borrow 10 dollars from bank A
6 p8 m1 M4 C0 gBecause bank A doesnt have enough cash on hand ! o. e- P  M& E6 k& `' q
therefore bank A need to be bankrrupt ??? Am I right ?? ...

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6 M: a8 x6 B! V7 L0 a7 N/ F" u5 S# U! q  C% w+ X
A->B->C->D->E
7 w& a, h3 x/ u$ J, `so does it mean if E failed to pay D,
5 t+ H( R, q. {) @3 `; p0 Y6 [6 Tall the B,C,D,E have to go bankrupt?# L. T' e+ m9 |$ T2 v+ ^3 @9 X- d

" Q& u1 v! g4 [! a* C6 ?9 R9 I7 v" p9 i( O/ y" I4 {: r
the multiplier just tell how much money created in a whole economy,   |' H- q" a. K+ j4 V8 L/ R
in this case it doesnt really matter how much money is created,
$ j/ Z4 g  B: Z# j& q* I2 i4 Tit's the problem of the debt itself.
. a: W5 m. T3 M3 p! ]( \the debt(securities) is bad, faulty, that harmed the whole system.