Woah there boy

When you make someone a loan, you don't lose the money. You just replace one asset (cash) with another asset (the right to have your capital repaid, plus the right to receive whatever interest you have agreed). You still have an asset. That's the core difference between lending someone money and giving someone money.

Of course, your loan asset is only as good as the creditworthiness of the person you have lent it to ... The dodgier the institution or person to which you have lent money, the less likely you are to get it back.

Take the example of a bank. When you pay money into your account, you are lending it to the bank. You are swapping the money for a debt which they owe you. Mostly the bank is good to repay you, and therefore we think of the loans we have made to banks as still being "our money". But they aren't: they're just loans, with a corresponding right of repayment. So if the bank turns out to be dodgy, it can't repay the loan it has taken out from you.

Each time NCFC borrows money it assumes an obligation to pay it back. When Delia agrees to swap her loan asset for shares in the club, that's a genuine benefit to the club. It may also reflect a commercial view on Delia's part that the club is more likely to be bought out (so more shares = more money) than to earn enough to repay the loans. It's bound to push up the price of purchase of the shares, of course, since they were swapped for a loan of know value.

Posted By: Old Git on March 24th 2009 at 10:41:47

Message Thread

Reply to Message

In order to add a post to the WotB Message Board you must be a registered WotB user.

If you are not yet registered then please visit the registration page. You should ensure that their browser is setup to accept cookies.

Log in