I am writing this Hub to give additional information to a hub I wrote in order to answer the request "How to Deal with Bill Collectors when You have No Means to Pay"

The need to write this, is to help simplify what the banking business is and why you shouldn't feel sorry for the banks or feel obligated to do something that is not good for you or your family in the event you find yourself in a financial hurt locker!

So, here is the banking business in a nutshell. The Bank is a business (Not your friend) and like all businesses it has an obligation to do it's best to make a profit.

This profit is made by loaning money to people for whatever reason and charging rent on the money. Seems like a simple business model. Well like all things the greedy get involved and start complicating it in order to make more money. Which they have an obligation to do.

So, they figured out that you can make even more money if you loan money that is not yours. So what they do is the say "Hey give me some of your money, I will give you anywhere from 0 to 6 percent (depending on what type of account you open)."

This is where most people don't realize that placing your money in the bank is exactly like placing your money on a crap table. That is correct the money grubbers have made it look legit, but in the end it is only a raquet no different than the mob, only in banking the fat cats get the government on their side.

So here is the deal you give them your money thinking to make a quick easy buck. But, like Vegas the numbers are stacked. They take your money and loan it out from as little as 6 percent (mortgage) to as much as 25% (Credit Card) they keep the difference. Simply a pass through raquet.

Now think about this. It is like you are playing craps by proxy. Your giving your money to someone else to go throw them bones with. Now the bank hedges it's bets very well. They first try to get collateral to secure the loan. Second they use mathmatical formulas to predict the likelyhood of default (FICO score). But at the end of the day the only reason they are allowed to charge interest is because there is a risk of default. The defaulters are no more stealing the money from the bank or the depositors (Everone in this deal is at the poker table whether they realize it or not) than the crap player is when he roles a seven on the come out. Here is where big business media spin has us programmed to do some pretty harmful things to our psychies in order to pay our debts, but it is a simple numbers game with winners and losers and the rule is the same, "you pay your money you take your chances."

Now back in the late twenties early thirties the banks loaned out a lot of money on margin. That means they took your money and gave it to investors to buy stock in corporations using the shares as collateral. Just like the housing market the stock market dipped and caused a cascade of defaults.

So here is where government and banking get into bed. The banks ask for help, government says ok. So, what they said was, "we need to get people to put money in our banks in order to have money to invest in order to make money." See, nobody trusted the banks since the screwed the pooch, so the banks got the government to create the FDIC in order to lure the working man back into giving over his hard earned greenbacks and they made the working class feel like they were doing them the favor when in reality they used the working classes taxes to pay for it. See for con artist nothing is more satisfying than hitting the same mark twice.

There is a problem here, no one holds a gun to your head and makes you play craps, and neither does anyone hold a gun to your head and makes you put your money in a bank. But, the banks got in bed with the gov and put a little sweetener in the pot. Think of it as the pit boss comping your room. It is no different only a tactic to keep you at the table longer so more money can be made.

So, that is the first part of the banking business in a nutshell. The second part of their business is collections of the loans. If a loan is defaulted they have six months to collect or else the loan must be written off against their profits which they get a tax break like all other business on losses.

After that it is off their books. It is sold to a collection agency on contigency, meaning if the agency collects the bank will get some percentage back and book it as pure profit.

Now, a lot of people have bad mouthed the banks and lending industry for giving money to people who can't afford it. Well, this is a little more complicated so let me explain the idea.

The bank has an obligation as a business to make a profit in order to pay taxes. If it is a corporation it also has an obligation to it's owners to make a profit. In order to make the max profit they must ensure they get every single dollar made by every income earner in the world.

It is easy to see this as the one bank model. Imagine all banks are represented as one giant bank. This isn't that far from reality, once one traces all the ownership back to the real owner, were only talking a few giant banks. Anyway, Here is why they give loans to people who can't afford them.

Let's look at the poor man buying the car scenerio. First, the guy goes into get the car. He get's the loan which the bank figures he is a poor credit risk and charges him 24% on the loan. Meaning most of his first two years of payments will be interest.

They guy takes the money and gives it to the dealer. Dealers don't own the cars they sell, most dealers use a credit line to buy the car from the factory. So, as soon as the guy buys the car the dealer gives the bank it's money back minus the dealer markup which is only about two grand. But since the dealer used a loan he payed interest so he didn't make the full amount.

The guy only pays on his loan for two years paying roughly 5000 dollars. 4500 interest 500 principle. The bank repos the car and sells it. So you see. The bank recovered it's property squeezed the guy for 4500 profit on money it immediatly recieved from the dealer. The bank just swished some of its money around and made about a 200% profit on a loan that went bad.

So, don't feel sorry for the Bank. The credit card scam is much worse. I hope this helps people understand the bank a little better. I think it is the worst possible place to put your money.