What does it mean, derivative?

The mortgage...

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

Well I have the original mortgage on my house.

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

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

And that caused housing prices to go up.

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

why.

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

You know, we take out these loans to buy houses.

And Bear Stearns is doing this for millions of mortgages at a time.

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

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

We create financial markets that are super complex.

But for the simplicity of this argument,

You take a bunch of mortgages, so you know, these are house mortgages.

Remember, it was 6 not too long ago.

If you look at the major categories they have food and beverages, housing

You're talking about 0.5 per month.

Now what are my liabilities?

Right?

We all have heard of it.

So I need to borrow 750,000.

Yeah, this model actually goes as far as Excel would let me.

I suffered from my mortgage loan.

Remaining mortgage on the home, 1 07,000.

So, each of these is an investor.

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

So times a million, right?

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 .

Then you make your second payment.

This is really the tip of the iceberg.

It's only worth 100,000 now.

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

So on day zero, you have a 200,000 loan.

They sell it to Bear Stearns.

And you have to pay back the money, above and beyond the interest, over this time schedule.

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

There's 1,000 of me, and we are now going to pay the 10 .

Maybe you're sixty five years old.

I am right now thirty four years old and

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

You're assuming interest only loans.

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