I am relatively new to economics and after reading a significant amount of information on the net I have some probably pretty basic questions:
1. A bank gets money either from a central bank, depositors or other banks (or all three).
Under the fractional reserve system the bank then lends out 10x the money it recieves.
The profit of the bank is determined by the amount of interest it receives from these loans.
If 90% of these loans no longer pay interest (default) the bank still has the same amount of money it had to begin with.
Does this mean than the bank needs more than 90% of its loans to default for the bank to actually LOSE money?
2. Why did the government need to purchase the toxic debt that these banks owned when these banks had just created the money to issue these loans?