2016: The Year of Bond Defaults

#2
#2
I just KNEW 007 was over extended on his credit lines.
 
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#17
#17
Rasputin_Vol said:
I just loaned my sister $1000 at no interest or at a negative interest rate. Is that an asset?
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I have 3 sisters, two of which wouldn't need to borrow any money, and the other, if I was was stupid enough to give her any money would be a write off.

Which one is the asset?
 
#18
#18
If you are a bank and are able to print money out of thin air and you loan out $1000 to my sister, then that would without question be considered an asset the moment she makes her first payment. It cost the bank nothing to issue the loan and may have even demanded collateral. So really, with the collateral, the bank wins even if my sister doesn't make the first payment. They get a real tangible item in exchange for some paper and ink or electronic 1's and 0's in her checking account.

Meanwhile, the $1000 I lend her represents my excess labor. The money I loan her is essentially a transfer of wealth from me to her until the moment she pays me back the principle plus inflation. I can't realize an actual profit until she repays me anything afterwards, so I would need to loan her the money at a rate that is above the rate of inflation. In the meantime, I don't have access to my money, nor do I have an asset. All I have is a promise to repay by a counterparty. Nothing more, nothing less.
 
#19
#19
Rasputin_Vol said:
Meanwhile, the $1000 I lend her represents my excess labor. The money I loan her is essentially a transfer of wealth from me to her until the moment she pays me back the principle plus inflation. I can't realize an actual profit until she repays me anything afterwards, so I would need to loan her the money at a rate that is above the rate of inflation. In the meantime, I don't have access to my money, nor do I have an asset. All I have is a promise to repay by a counterparty. Nothing more, nothing less.
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I know you don't understand. You have made that clear. If you have a promissory note, you have an asset. Maybe you would feel better calling it a "receivable". But, by definition, a receivable is an asset. If you don't wind up collecting on that receivable, you have a non-performing asset. Just like owning a piece of property that is now worth less than what you paid for it, if you don't get your money back, then the promissory note wasn't worth the invesment.

Simply put: if one party has a liability, another has an asset. You don't have to like the terminology, but you not liking it will not change it.
 
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#20
#20
bamawriter said:
Simply put: if one party has a liability, another has an asset. You don't have to like the terminology, but you not liking it will not change it.
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My sister has the asset. She has the $1000.

And terminology is very important. Unfortunately, we have allowed others to convince us that putting our hard earned cash into a bond is just as equal as a bank that is able to print cash out of thin air with no risk and loan someone money.

I guess when I go to Vegas, that $100 I hand the guy at the craps table is an asset, also.
 
#21
#21
Rasputin_Vol said:
My sister has the asset. She has the $1000.
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If she owes it back, it is not hers. She has a "liability" to return your "asset." If you loan me your car, it is not suddenly my car.

And terminology is very important. Unfortunately, we have allowed others to convince us that putting our hard earned cash into a bond is just as equal as a bank that is able to print cash out of thin air with no risk and loan someone money.
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That your asset is not identical to a bank's asset does not mean that either one is not an asset.

I guess when I go to Vegas, that $100 I hand the guy at the craps table is an asset, also.
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Yes it is. If you roll snake eyes, your asset didn't perform. If you win, then the casino has a liability to return your asset and then some. A lottery ticket is also an asset, it is just an asset that has a infinitesimal chance of performing.
 
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#24
#24
A loan to you from me reduces my cash and creates a receivable. My net assets do not change. You receive cash and now have a payable. Your net assets don't change.
 
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#25
#25
bamawriter said:
I know you don't understand. You have made that clear. If you have a promissory note, you have an asset. Maybe you would feel better calling it a "receivable". But, by definition, a receivable is an asset. If you don't wind up collecting on that receivable, you have a non-performing asset. Just like owning a piece of property that is now worth less than what you paid for it, if you don't get your money back, then the promissory note wasn't worth the invesment.

Simply put: if one party has a liability, another has an asset. You don't have to like the terminology, but you not liking it will not change it.
Click to expand...

So a receivable worth nothing and bought with real wealth is an "asset" - at least until written off as a loss? Creative investment is fascinating, but gotta balance those columns. The banking world was just chock full of "assets" early in 2008, and still we are primed to hold to the myth that by definition an asset is something positive.
 
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