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TOPIC: Metal Blah Blah Blah
[Deep Freeze] Tuesday, March 24, 2009 8:15:39 AM 

OK, I will try to give you an abbreviated version. As I mentioned earlier, it is a very complicated process. Here goes;

When mortgage loans are made (in this manner) they are put with others. Thousands are "bundled" and sold to Wall Street as "Mortgage Backed Securities". These loan pools are used to sell investors bonds and and other "secured" investments. They are the "collateral" you mentioned in an earlier post. The theory is, not all will go bad and the interest collected in a pool is far greater than the loss. Now, the problem comes when this system grows to a point where losses begin to overtake profit.  More and more of these "bad loans" go sideways and are supplemented by further bad loans. They are sold and re-sold to different investors throughout the world (so other economies are affected). As more bundled securities arrive and are sold, the risky loans that have gone bad slowly begin to affect the profit margin.  In the meantime, the loss loans now become foreclosures. These are sold at reduced rate and then picked up and re-mortgaged and placed into yet further pools. The values are watered down over time, and most of the time were inflated to begin with. This causes what is known as being "upside down"..property is worth less than the amount owed. Of course, that further disrupts the total value of the securities that are the basis of other investments.


I am being somewhat simple in my explanation. The fact is, this does affect other economies because they are sold on the market and investors from all over the world are involved. Not necessarily in mortgage investments, but in the resulting securities that the bundles fund.

  [Show/Hide Quoted Message] (Quoting Message by _strat_ from Tuesday, March 24, 2009 8:01:53 AM)
Edited at: Tuesday, March 24, 2009 8:23:28 AM
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