Or they might even start to buy things that aren't Treasuries.

They include the guys from Enron who designed energy trading, and the Wall Street financiers like Goldman Sachs who gave us the sub prime mortgage crisis.

The mortgage...

Your address in Brooklyn, the payments on your mortgage, how long you've been a member of the NYPD.

Most of the loans we're familiar with in our personal

Let's say it's um let's say its 10 billion of commercial mortgages.

So let's think about how we manage our money.

So right here are a whole bunch of people's mortgages.

why.

And that caused housing prices to go up.

Home Address City

Well I have the original mortgage on my house.

I suffered from my mortgage loan.

This is really the tip of the iceberg.

It's only worth 100,000 now.

Let's say I'm some type of the Investment Bank.

We all have heard of it.

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

You're assuming interest only loans.

So, each of these is an investor.

What does it mean, derivative?

Now what are my liabilities?

But for the simplicity of this argument,

Right?

Remaining mortgage on the home, 1 07,000.

I am right now thirty four years old and

And when they default, what is kind of the recovery?

And why does that matter?

So let's say I have another group of assets.

Can I go out there and I buy a whole bunch of mortgages.

I paid off the mortgage when I got my promotion.

So I stick them all inside of that.

They sell it to Bear Stearns.

But maybe that's not enough. Maybe the economy is still tanking.

I've essentially become the lender to the home owner, and so the home owner's morgage payment will now come to me the Investment Bank .

We create financial markets that are super complex.

We would pump more and more money into Fannie and Freddie Mac.

We would lower standards on what it took to get a mortgage.

So I'll just draw it down here.

Imran's no dummy, so he does the same thing. He raises his price to 2.

So times a million, right?

We even bought our old house, assuming that we'd never have to pay the mortgage in full.

The Thompsons live on a farm just outside Nyack.

Auto industry is in the dump. Housing market doesn't have a heartbeat.

You'll sell the house and you'll pay it off, even though you can't pay the mortgage anymore.