A short rough primer on leveraging and derivatives

Oxdown Gazette ^ | 28/09/2008 | Hugh

[tcostell]

A friend told me recently that:

"In modern America, all ignorance is intentional."

[Oatka]

I'll consider writing something up, but I've tried this sort of thing before and the lest few times it wasn't worth the trouble.

Vectoring us to your post/website comment OR a cut and paste post isn't that hard.

[tcostell]

I meant, the last time I tried to write up some facts about how the finance industry works. the last few times it was actually on a slightly different topic.

[palmer]

If you decide to write something up, be sure to add a section on how the meltdown happened. I’m interested in more than the usual scapegoat: a relatively small fraction of bad mortgages.

[Toddsterpatriot]

You use this money as the basis to take out a loan so you can buy $100 million in mortgages. Now say you issue mortgage backed securities based on these and sell them. Now you have a $100 million in cash so you go out and buy more mortgages

Why issue mortgage backed securities at all? Just sell your $100 million in mortgages and take that cash and buy $1 billion in mortgages. Then sell your $1 billion in mortgages and buy $10 billion in mortgages. Then sell your $10 billion in mortgages and buy $100 billion in mortgages. Then sell your $100 billion in mortgages and buy $1 trillion in mortgages.

I could go on, but why bother? /collateral confusion off