In this case, the ratio of our assets to equity so we have assets to equity leverage, is what people say in this case, it's 1,000 to 300 or what is it?

So 5 million of liabilities.

But let's say its assets are worth 1 million.

You'll hear people talking in terms of 10 1 or 2 1, or something to one, but 10 3 is a fair leverage ratio.

Now, that was the purchase price of the house.

So immediately, they have 20,000 equity and an 80,000 loan.

How much equity do they have?

Well, that means the ratio of the assets to the equity is 2 1.

Each share in this case once again, if you believe that the assets are worth 1 million are going to be 1 million.

And we saw already in the last video, if the Fed does not like the rate that they're borrowing to each other, and if even announcing the federal funds rate doesn't cause the banks to say,

So how does that work?

I owe these people that money is 700 and my equity is 300.

Remember, it's free none of us are making any money on this thing.

His own bank?

Yes, it's an enterprise.

We're now going to make all of our mortgage payments, the 10 payment, to this bank, this investment bank.

So essentially, these banks have a bunch of assets.

So let me delete this.

And this is really about as difficult as I guess we could say basic ratio problems get.

It has no liabilities.

So this is all equity.

And if this is a loan from Bank B, Bank B would have an asset called loan to Bank A.

Continue at Own Risk

Continue at my own risk

Whether people will continue to loan them money.

Well the first thing that you would do is that you would lower the

Whispers Where's the selfhelp section?

Proportion

Proportional Bias

Ratio

So now the Special Purpose Entity is the owner of the mortgages .

They'll sell the loans to like, let's say, Bear Stearns. So that's an investment bank.

What's it like being an investment banker?

But it's roughly the right number.

And we'll introduce debt later, because that's another variable that a lot of people don't think about when they

People start shorting the stock, the stock go starts going down.

And so that cash ended up here.

The bank accommodated the company with a loan.

Papa went to the bank to ask for another loan.

So the asset value is all in equity.

The market is saying, this company's worth 10 million.

So essentially, these people have to put 20 down, and they had good credit scores, and all the rest.

We have a minus fifteen apples.

Why wouldn't I just pour all of my money?

It could be a whole set of people.