The Creature From Jekyll Island - Chapter 2 SUMMARY

What happens to a bank if the bad loans exceed the size of the assets?

• The bank becomes more profitable

• The bank faces financial instability

• The bank's assets increase

• The bank's liabilities decrease

What is the first rule of survival for a bank with bad loans?

• Increase interest rates

• Reduce operational costs

• Sell off bad loans

• Seek government bailout

The final solution proposed by the banking cartel for dealing with defaulted loans is:

• Seizing collateral

• Restructuring the loan

• Writing off the loan

• Have the Federal Government guarantee payment of the loan

The role of the FDIC in the event of a bank's insolvency is:

• To provide loans to the bank

• To insure deposits and manage the bank's assets

• To close the bank and sell its assets

• To merge the bank with another financial institution

What is the final cost of the 2008-2009 bail-out?

• $750 billion

• $800 billion

• $900 billion

• $1 trillion

What is the central fact to understanding national monetary events according to the passage?

• The central fact to understanding these events is that all the money in the banking system has been created out of nothing through the process of making loans.

• The central fact to understanding these events is that money is backed by gold reserves.

• The central fact to understanding these events is that money is created by the government.

• The central fact to understanding these events is that money is distributed equally among all citizens.

What happens to a bank if the bad loans exceed the size of the assets?

• the bank becomes technically insolvent and must close its doors.

• the bank will continue to operate as usual.

• the bank will receive a bailout from the government.

• the bank will increase interest rates to cover the losses.

What is the first rule of survival for a bank with bad loans?

• To avoid writing off large, bad loans and, if possible, to at least continue receiving interest payments on them.

• To immediately write off all bad loans.

• To increase the interest rates on all loans.

• To stop giving out any new loans.

What is the final solution proposed by the banking cartel for dealing with defaulted loans?

• The final solution on behalf of the banking cartel is to have the federal government guarantee payment of the loan should the borrower default in the future.

• The final solution is to write off the loans completely.

• The final solution is to increase the interest rates on defaulted loans.

• The final solution is to sell the defaulted loans to private investors.

What is the role of the FDIC in the event of a bank's insolvency?

• The FDIC is used to pay off the depositors in the event of a bank's insolvency. It is not insurance, as the presence of 'moral hazard' makes the risks it protects against more likely to occur. The funds for the FDIC come from assessments against the banks and ultimately are paid by the depositors themselves. When these funds are depleted, the Federal Reserve System provides the balance in the form of newly created money, which can lead to inflation.

• The FDIC is used to provide loans to banks in the event of insolvency.

• The FDIC is used to insure the banks against any kind of financial loss.

• The FDIC is used to manage the assets of insolvent banks.