Commanders Post at The Warpath - View Single Post - Understanding The Issues: Subprime/Housing Crisis

That Guy · 06-20-2008, 09:56 AM

thats cool onlydark. some people deserve to get arrested.

the other side i didn't mention is what made these mortgages so attractive to banks... cause these mortgages just didn't sell until someone created tranches out of the debt (where the less likely to pay/higher risk loans were put in higher interest tranches and sold as a bundle of high return debt - and these are the investors that'll lose the big money - but it's their own fault, and unlike the elderly that got duped, they have no real excuse or reason to get a refund).

anyways, you had several categories of tranches, which are just different layers of debt you could buy from banks that got grouped together by how risky portions of the actual loans in those tranches were (and since these were terrible loans with no hope of getting repaid, some gave returns of 15%). the higher risk tranches got paid after the lower risk tranches were paid out, and a lot of banks and some hedge funds got a little overzealous in buying these things; having since paid for them with multi-billion dollar hits to the bottom line.

i know i haven't really done the best job explaining it, but i've tried to avoid having to explain liquidity and going too in depth with specifics, since that'd take a bit longer to spell out completely.

06-20-2008, 09:56 AM	#8
That Guy Living Legend Join Date: Jun 2004 Location: VA Age: 42 Posts: 17,620	Re: Understanding The Issues: Subprime/Housing Crisis thats cool onlydark. some people deserve to get arrested. the other side i didn't mention is what made these mortgages so attractive to banks... cause these mortgages just didn't sell until someone created tranches out of the debt (where the less likely to pay/higher risk loans were put in higher interest tranches and sold as a bundle of high return debt - and these are the investors that'll lose the big money - but it's their own fault, and unlike the elderly that got duped, they have no real excuse or reason to get a refund). anyways, you had several categories of tranches, which are just different layers of debt you could buy from banks that got grouped together by how risky portions of the actual loans in those tranches were (and since these were terrible loans with no hope of getting repaid, some gave returns of 15%). the higher risk tranches got paid after the lower risk tranches were paid out, and a lot of banks and some hedge funds got a little overzealous in buying these things; having since paid for them with multi-billion dollar hits to the bottom line. i know i haven't really done the best job explaining it, but i've tried to avoid having to explain liquidity and going too in depth with specifics, since that'd take a bit longer to spell out completely.