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February 22, 2009

Weekend Watching VI

These two clips about the credit crisis are simplified -- naturally, or you'd be here the rest of the month. But they show the major points.

One thing not mentioned is that historically (for most of the 20th century), mortgages in the U.S. were handled by savings bankers and not by investment bankers. There were no phone calls from Main Street to Wall Street, as the video describes it. Investment bankers got involved with mortgages in the 70s and 80s when GNMA (followed by others) began to securitize mortgages to make MBS's. These mortgage-backed securities are a big topic in Michael Lewis' book Liar's Poker. (It's a good read, btw.)

MBS's were a way for bond brokers to trade a group of mortgages in much the same way they traded corporate and government bonds. MBS's became CMOs (CDOs, as the video calls them) when traders cut them up into tranches (a French word for slices).

It's an interesting cultural take that the prime borrowers appear as a couple with 1 child and a dog. But the sub-prime borrowers are shown as overweight smokers with 4 children. It's a wonder they didn't put horns on their heads and work an SUV in there somehow.

Posted by joke du jour at February 22, 2009 12:46 AM

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Thanks, James! This was the first link I'd found to a prospectus for an actual MBS (it's on the GinnieMae site). Read it and weep.... they should sic the bunko squad on these guys!
Be well,
Dave H.

Posted by: Dave H at February 22, 2009 09:24 AM


Always happy to oblige. (At least I know someone's reading.)

Posted by: JdJ at February 22, 2009 02:45 PM

LOL! Great minds think alike!?!? I sent this video around to a few people earlier. If you want it all in one piece, go here: http://crisisofcredit.com/ Liar's Poker is a good read, I agree.

Posted by: RW Rogers at February 22, 2009 11:59 PM


Your link to crisisofcredit.com worked this morning but I noticed this evening that it redirects to YouTube.

Maybe the site's burning through its bandwidth.

Thanks for the link in any case. I should have included it in the post.

Posted by: JdJ at February 23, 2009 05:42 PM

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