No. of Recommendations: 2
I spend the $20m during the year, buying yachts, artwork, whatever. At the end of the year I owe the bank $1m in interest. I roll over the loan, using the same $30m in collateral, and ask for another $21m in loan collateralized by another tranche of $32m in stock. I pay the $1m interest out of the new loan, and at the end of the year I will owe them another $1m for the second year’s loan. The amounts increase, but barely compared to what I have to play with.
Thanks, great explanation. And, wow, am I ever (financially) naive!
