Your collateral is now useless, give me more collateral or pay me back
I’m no economist, but I’m pretty sure that’s not how loan contracts work. The lender is taking a risk and is agreeing to accept the offered collateral as insurance against the debt. They can’t just decide they don’t like the collateral any more and unilaterally change the terms.
That’d be like if you took out a mortgage to buy a $300K house for a $250K sale price, and then a flood comes through and damages the property to the point that it’s only worth $200K, and the bank came knocking and said “pay it back or at least fork over another $100K so we feel comfy again.”
I’ll admit, useless was a bit hyperbolic statement. But with stocks there is a concept called margin call which in layman terms means that if the value of your stocks (relative to the amount of what you loaned) drops too low the lender will ask you to either pay off a portion of the loan (to bring the existing loan in line with the new evaluation of the stock) or add additional collateral (to raise the total value of the collateral to be in line with the remaining loan). If neither of those things are done the lender will sell your stocks at whatever price they can get to pay off the loan (either fully or partially).
Mortgages don’t have margin calls. If the houses loses value it just loses value and the bank doesn’t care as long as you keep paying the payments.
Right, loans and stock market shenanigans are different animals. I assumed you were talking about the former given the context of “how did OpenAI find the money to pay AMD $78bn”.
In retrospect, I suppose options could have played a factor… but then again this level of ratfuckery is well beyond my understanding, so you could tell me Santa gave them the money and it’d make just as much sense.
I’m no economist, but I’m pretty sure that’s not how loan contracts work. The lender is taking a risk and is agreeing to accept the offered collateral as insurance against the debt. They can’t just decide they don’t like the collateral any more and unilaterally change the terms.
That’d be like if you took out a mortgage to buy a $300K house for a $250K sale price, and then a flood comes through and damages the property to the point that it’s only worth $200K, and the bank came knocking and said “pay it back or at least fork over another $100K so we feel comfy again.”
I’ll admit, useless was a bit hyperbolic statement. But with stocks there is a concept called margin call which in layman terms means that if the value of your stocks (relative to the amount of what you loaned) drops too low the lender will ask you to either pay off a portion of the loan (to bring the existing loan in line with the new evaluation of the stock) or add additional collateral (to raise the total value of the collateral to be in line with the remaining loan). If neither of those things are done the lender will sell your stocks at whatever price they can get to pay off the loan (either fully or partially).
Mortgages don’t have margin calls. If the houses loses value it just loses value and the bank doesn’t care as long as you keep paying the payments.
Right, loans and stock market shenanigans are different animals. I assumed you were talking about the former given the context of “how did OpenAI find the money to pay AMD $78bn”.
In retrospect, I suppose options could have played a factor… but then again this level of ratfuckery is well beyond my understanding, so you could tell me Santa gave them the money and it’d make just as much sense.