Quote:
Originally Posted by btimbit
I googled it and still have no idea wtf it is
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Kiting is writing a cheque when you know there isn't money in the account, but when there will be money in the account by the time the cheque makes its way to your bank. The example upthread of buying groceries with a cheque 1 day prior to payday is a good one. When the cheque was written there weren't sufficient funds, but by the time the store got the cheque to the bank there was so it cleared.
What Suntrerra did is the same thing on an industrial scale. They borrowed a bunch of money in the US, and would write a huge cheque to their US subsidiary to pay the loan on an account with no money in it. Say for $1MM.
So now their US account gets credited for the $1MM, and the Canadian account is overdrawn by $1MM. The US bank sends the cheque back to Canada and requests the $1MM. By the time the request gets there they've deposited a $1MM check drawn on their US bank into their Canadian bank. So the Canadian bank thinks they have the money and authorizes the payment. You go back and forth every couple of days and you've paid your $1MM loan without having any actual money.
The two problems are:
1) that's illegal
2) you have to keep the money flowing in circles perfectly balanced forever. 100% chance eventually something messes up, the whole plan comes crashing down and you get caught.