These are the people who first lose money.

They serviced the loans.

We would just know that there is a 20 chance.

It allows let's say this group of borrowers let's say this pool of borrowers right here actually didn't

Now let's say it gets even worse.

But this I just want to show you some data here.

What is your strategy in your household?

Well everyone knows that it's not going to be exactly 10 .

Some percentage of these borrowers are going to default on their mortgage.

They would actually owe this extra 1 million.

So, each of these is an investor.

That man borrows money from many lenders.

That man is a heavy debtor.

That man has many debts.

The bank was profitable.

That's not always the case.

You're still solvent.

External debt something that I can tell you a long story about because I personally worked on one of the biggest debts on the continent has come down dramatically.

Our economy grew from 2000 to 2007 on the back of consumers massively overborrowing.

That's where the 1 billion comes from.

So the 300 million from equity, they're going to get 55 million assuming that there are no defaults or pre payments or anything shady happens with the securities.

So all ended up inside the Special Purpose Entities .

I know I've overdrawn this picture a little bit too much.

I can no longer fulfill my obligations.

And of those 20 that default, we have a 50 recovery.

We would create incentives for securitization.

Payable to the City of San Francisco.

Helps bring it down.

Most times the liabilities are pretty easy to get a handle on.

You have 189,000 as the value of this equity.

So we still have the same amount of debt.

Have a surplus? Take two tax cuts, roll back some regulations and call us in the morning.

So that's bankruptcy.

You go get bankruptcy protection.

This guy, he does have interest.

It can do it through debt or equity.

I have 4 billion in residential CDOs, collateralized debt obligations.

Over the next few years big decisions will be made in Washington on jobs, the economy, taxes and deficits, energy, education, war and peace.

They might have issued maybe they issued a million bonds where each of those essentially represent a debt of 80.

My next presentation, I'm going to take it to a further

And so when the Federal Reserve or any Central Bank prints money, and it buys debt, it goes out into debt markets and it buys it, it usually buys the safest kind of debt, but that affects all of the debt markets, it goes out and buys in the debt market, they're essentially shifting the supply curve of money to the right, they shift the supply curve to the right.

And this is what this mortgage backed security market allows.

Because the government now owns 90 something percent of the company.

What are my liabilities?

It's exciting, but we went over our finances and...