Ryan Gosling explains how to turn debt into money | The Big Short | CLIP
Boxoffice Movie Scenes・2 minutes read
Mortgage bonds have evolved from simple AAA mortgages to complex private tranches with varying risks, leading to rising default rates. Banks are profiting from selling risky bonds repackaged into high-rated CDOs, potentially causing a collapse in the housing market with severe economic repercussions.
Insights
- Mortgage bonds have evolved from simple, government-guaranteed AAA mortgages to complex private structures with varying risk levels, allowing for higher profits with increased risk.
- Banks are engaging in deceptive practices by selling risky bonds, repackaging them into CDOs with inflated ratings, potentially leading to a catastrophic collapse of the housing market, impacting the economy and investors.
Get key ideas from YouTube videos. It’s free
Recent questions
What are mortgage bonds?
Mortgage bonds are financial instruments initially composed of AAA mortgages guaranteed by the U.S. government, but now consist of private tranches with varying risk levels, from AAA to B.
What is the current default rate on mortgage bonds?
The default rate on mortgage bonds is currently at 4%, with the potential for catastrophic failure if it reaches 8%, leading to profit opportunities through credit default swaps.
How are banks profiting from mortgage bonds?
Banks are profiting by selling risky mortgage bonds and repackaging the worst ones into CDOs, which are then given high ratings by agencies, creating a lack of awareness about the underlying risks.
What is the impact of deceptive practices in the housing market?
Deceptive practices in the housing market, such as bundling risky bonds into CDOs, are on the brink of causing a collapse, with significant implications for the economy and investors.
What is the risk-profit relationship in mortgage bonds?
In mortgage bonds, higher risk tranches yield more profit, but with the default rates rising, there is a potential for catastrophic failure if they reach 8%, emphasizing the delicate balance between risk and profit in this market.
Related videos
CNBC
Why China, Japan And The Fed Are Shaking Up The $26 Trillion U.S. Treasury Market
CrashCourse
How it Happened - The 2008 Financial Crisis: Crash Course Economics #12
The Wall Street Journal
Why Bond Yields Are a Key Economic Barometer | WSJ
CNBC
Why Hundreds Of U.S. Banks Are At Risk Of Failing
Khan Academy
Relationship between bond prices and interest rates | Finance & Capital Markets | Khan Academy