What is bad debt? I mean what I am hearing about in the news tonight?

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A bank has a bad debt. I assume that means someone owes them money but is not paying on it? So the sell it...so let's say They lent the Jones $200,000 & the Jones family paid for years but when it got down to $100,000 owed they had some problems & stopped paying but are trying...OK, so I buy their bad debt so for $50,000 I buy this $100,000 debt...Ok so if I can get Jones to pay me more than $50,000 I make that much profit....is that what it is?...if not & you can explain I appreciate your answer.
 
You described it pretty well but you left one thing out. If the Jones were really trying and have called the bank and worked with them on it, their debt would not be sold as bad debt.
 
You've pretty much nailed it, except it's important to note that the bank is still losing $50,000 in your example, so they aren't likely to sell the debt unless they're absolutely certain that they would otherwise get nothing. Since the bank is so certain that they'll get nothing, it's not very likely that you'd make over your 50,000 mark either. This is why it's bad to treat an owed debt like it's actual money- it's counting your chickens before they've hatched. Counting the payments as income is fine, but counting the debt itself as a tradeable asset leads to the sorts of problems we're having right now.
 
There is no profit from bad debt whatsoever. The Jones buy a home for 200,000. The home is actually worth 150,000. This was made possible by the sub-prime mortgage s mandated under the "Community reinvestment Act" The Jones make payments on the homes as an adjustable rate mortgage. The rate goes up and they can no longer afford the payments. They walk away from their home. Hundreds of thousands of other families did the same thing. Demand for homes goes way down and the value of the homes drop to 100,000. The banks sold loans to investors who insured the value of the loans. The government sold insurance to the investors. Now, the home owner loses, the banks lose, the investors lose and the government loses. The tax payer is left holding the bag.
 
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