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

The mortgage...

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

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

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

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

And they'll look at the historical default rate.

Because housing prices been going up.

And that caused housing prices to go up.

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

Well I have the original mortgage on my house.

why.

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

I suffered from my mortgage loan.

It's only worth 100,000 now.

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

We all have heard of it.

Of these 1,000 borrowers, 200 of them are just going to lose their job or whatever.

You're assuming interest only loans.

So, each of these is an investor.

This is really the tip of the iceberg.

What does it mean, derivative?

But for the simplicity of this argument,

Remaining mortgage on the home, 1 07,000.

Housing prices went up, then we had a lot fewer people defaulting on their loans.

Now one thing I want you to keep in mind is, they get 10 only if every one of these borrowers pays their loans, never defaults, never pre pays.

I am right now thirty four years old and

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

Now what are my liabilities?

Right?

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 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.

So times a million, right?

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

And let's say on that house unfortunately, I don't own it outright.

I'll do kind of a more complicated one.