Chapter 219: We Are Still Profitable

"Don't worry, I know what you're concerned about. You think we're losing money, right?"

Carter smiled calmly, tossed Goodman a cigarette, and gestured for him to sit down and not be so anxious.

"At present, this interest rate does seem unprofitable. But isn't the situation clear now? Why is the Federal Reserve raising interest rates? Or rather, what will be the result of their continuous rate hikes?"

The effects of the Federal Reserve's rate hikes had been discussed before, and Goodman understood Carter's logic. However, understanding was one thing; Goodman still felt that this was a completely unreliable situation.

As a result, Carter heard Goodman mutter somewhat resentfully, "It will result in us issuing loans that not only don't make money but actually lose money!"

"Losing money is just a matter of these few years. Once the inflation rate drops in a couple of years, you'll see! Remember, our loans are ten, fifteen, or even twenty-year contracts!"

"Losing a bit in the first two years is fine. When the interest rates return to normal levels in the future, can you imagine signing contracts at such high rates during normal times?!"

Carter spread his hands, his thoughts exceptionally clear.

In normal times, long-term real estate loan interest rates hardly ever exceeded 4.4%, and their 12% rate was nearly three times higher. From the perspective of the first few years, it seemed like they would lose one or two percent each year.

But what happens after these years are over?

When the 4.4% rate returns, they will have a large batch of 12% rate contracts.

"Goodman, think about it! The latest inflation rate is 12.9%, right? There are still six months left this year, so let's assume it will rise to 13.5%! How much have we loaned out so far?"

"6.8 million, and probably by tomorrow—no, this afternoon—it will surpass 7 million! You have no idea, more people have been coming in for loans these past few days. I'm worried that even with the bank's original funds, 10 million won't be enough."

Goodman still looked extremely gloomy. The more loans they issued, the more distressed he felt, unable to share Carter's optimism.

"With 6.8 million now, we can already set up 44 stores. We're not far from the target of 50 stores. Once we meet the demand for these 50 stores, we should stop!"

"No, no, no, we can't stop! Fifty stores aren't enough to cover much. Really, Goodman, believe me, the more loans we issue, the greater the profit!"

Hearing Goodman's intention to scale back the loans, Carter frantically waved his hands. How could they stop when there's such an opportunity to capitalize?

"Let's do some calculations. Take 10 million, for example. Suppose the inflation rate reaches 13.5% by the end of this year, rises to 14% next year, and 15% the year after, then starts stabilizing."

"In this case, after three years, 14.88 million will be equivalent to the current 10 million in purchasing power, right?"

"Hmm."

Goodman hummed in acknowledgment, without saying more, recognizing Carter's viewpoint.

"Alright, let's compare. Do you think 14.88 million at a maximum rate of 4.4% for ten years yields higher profits, or does 10 million at 12% yield higher profits?"

"First, let's calculate the nominal revenue after ten years. 10 million, with a total income of 12 million over ten years, of course, this is without accounting for principal reduction. Now, 14.88 million at 4.4% over ten years results in a theoretical total income of 655,000."

"Now, let's add the inflation factor. For our current model, the first three years are 13.5%, 14%, and 15% respectively, and the next seven years are about 5%. The total inflation over ten years is roughly 109%. So, the actual revenue from 12 million is halved, let's say 6 million."

"Then for the 14.88 million model, the ten-year total inflation is about 62.8%, meaning the actual revenue of 655,000 is only 402,000. So, Goodman, 12% annually is not low at all! If you raise it too high, no one will dare to borrow, and that would be the real loss!"

"The problem is, how can you be so sure that high inflation will only last for three years? What if in the future..."

The theoretical model was clear to everyone. Goodman naturally understood that in this loan model, the actual unit profitability was definitely lower than that of low-interest loans in normal times. But as long as the scale increased, it would be like selling in volume—the total profit would certainly not be weak.

But what if inflation didn't last just a few years? What if it persisted, not for ten years, but even for five years? Then they'd be facing a situation where they're not just unprofitable, but losing money.

"Why? Just look at the current interest rates. How many people dare to borrow now? Goodman, not every bank dares to do what we're doing! Not every bank has the kind of funding support we have!"

After his trip to New York, Carter was particularly confident. Not to mention Peter Lynch's side, just the Quantum Fund alone would bring in a few million dollars when the profits were divided, making their funds incredibly robust.

They had no fear of this minor loss!

"With the rising deposit rates, banks are continuously absorbing the money from people's pockets into their vaults. On the other hand, high loan interest rates mean that this money in the vaults doesn't flow out. This dynamic will inevitably lead to a sharp decline in market purchasing power."

"With reduced market purchasing power, factories can't sell their produced goods. How can they continue raising prices?! Moreover, after years of constant price hikes, it's time for it to end!"

"The current situation is just the darkness before dawn. Don't let this temporary darkness scare you."

"Alright, alright. Since you are so confident in your judgment, what more can I say?"

Goodman sighed. After a year of working with Carter, he had become well-acquainted with his young boss's personality. When Carter was unsure, he was easy to persuade, but once he made up his mind, nothing could sway him.

"The future is in the hands of you young people. Perhaps your decisions are indeed the right ones, especially in the public's eyes. Oh, I just remembered, do you recall the discussion with Mr. Benjamin about the immigration restrictions?"

"Of course I remember!"

"The regulations haven't been issued yet, but the number of people moving into Douglas and Pearson has been increasing! I think apart from job opportunities, our relatively low loan rates are a core attraction for them."

Goodman ran his hand through his hair, which had become somewhat unkempt due to recent stress and lack of grooming:

"Last night, my neighbor Mrs. Brownie praised our bank, calling it a genuine, people's savings bank. I thought it was just a polite remark at the time, but now I realize that if you stick to these low rates, it might turn out to be a blessing in disguise."

"For instance, some people have been inquiring at the bank about buying the land along the highway recently. They hope to purchase land near the suburbs, build housing, and apply to become citizens of Douglas."