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

The mortgage...

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

We all have heard of it.

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.

But for the simplicity of this argument,

Well I have the original mortgage on my house.

I suffered from my mortgage loan.

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

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.

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.

Those are essentially derivative securities that are derived from mortgage backed securities.

What does it mean, derivative?

Now what are my liabilities?

Right?

Remaining mortgage on the home, 1 07,000.

Because housing prices been going up.

So just in kind of our everyday personal finance world, your mortgage is actually secured debt.

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

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'm thinking about people's jobs, about their mortgages and pensions and their college funds for their kids.

This is highly rated mortgage backed securities, maybe they have a slightly higher interest rate.

What we are going to do is go buy things like highly rated mortgage backed securities, or things like commercial paper, AAA corporate debt, so that those things, the interest on those things goes down.

You can actually do this type of a structure with any type of debt obligation that's backed by assets.

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.