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Solved: A con artist has a great idea: hell open a bank without investing any capital
Chapter 0, Problem 2(choose chapter or problem)
A con artist has a great idea: hell open a bank without investing any capital and lend all the deposits at high interest rates to real estate developers. If the real estate market booms, the loans will be repaid and hell make high profits. If the real estate market goes bust, the loans wont be repaid and the bank will failbut he will not lose any of his own wealth. How would modern bank regulation frustrate his scheme?
Questions & Answers
QUESTION:
A con artist has a great idea: hell open a bank without investing any capital and lend all the deposits at high interest rates to real estate developers. If the real estate market booms, the loans will be repaid and hell make high profits. If the real estate market goes bust, the loans wont be repaid and the bank will failbut he will not lose any of his own wealth. How would modern bank regulation frustrate his scheme?
ANSWER:Step 1 of 2
The modern regulations related to the banking system will frustrate the con artist only because of two reasons. The modern regulations indicate that every bank must have capital requirements and must maintain cash reserves.