Quote:
Originally Posted by tony404
I just heard on the radio to forgive all those mortgages ,give the people those houses would only cost 200 billion. So why do they need close to a trillion?
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Bubbah buys a house for $100k
He finances it with Bank A.
Bank A then turns around and sell the mortgage paper to Bank B and the rights to service the original loan to Bank C.
Bank B then turns around and create a new derivative product. You now have a mortgage back security.
Hedge fund then buy the new security from Bank B and creates a new derivative product on top of the one Bank B created.
You now have 1 asset that is worth $100k that has been used to create 4 different securities.
Best case: Bubbah pays off his loan, all securities expire and everyone is happy.
Worst case: Bubbah bought a house for $100k that was really worth $50k, and now Bubbah can't make the payment anymore.
So you've got a $50k assets that has created $400k of problems.