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Re: az_maverick post# 138172

Wednesday, 02/27/2008 4:52:12 PM

Wednesday, February 27, 2008 4:52:12 PM

Post# of 245598
A prudent bank can easily take their losses if some companies fail because they diversify. It would be a big mistake to conclude that this investment must be good since a big well respected bank is giving a credit facility. That's why the interest rate is just THAT important. It gives you an indication of how risky the bank sees this investment. They have a portfolio with plenty high risk investments, if some fail, they still win. It is all statistics combined with bank policy on how much return they should have in the end (statistically you look up the break even point and you decide how much more money you want to make and add that to that return on top of this hurdle rate, nothing more, nothing less)
So as the bank might receive there first couple of interest payments + some capital back but lose the rest, they will recover this from other investments or vice versa (it is no rocket science, just statistics combined with some common sense). If you as an investor invest your money in this gem based on the fact that a big bank is also invested, you might just lose all your money (unless you also diversify of course, so hope you diversify)

just to check if the above is for the amusement of the writer and should only be considered as useless drivel