Basically, the banks bought insurance against those bonds tanking, which would have resulted in a huge premium when they did tank.
Instead, the insuring firm (Amherst) *paid off* those bonds, early, thus insuring they didn’t have to pay out any of the “insurance” money and that not only were the banks out the money for the bonds in the first place, they were out the insurance premiums *and* whatever else they’d leveraged off it.
Much like credit cards, actually. If you pay off your cards early, the credit card company can actually lose money. Same kind of thing here.
er “huge premium” should have read “huge payout”.
Exactly!