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

The mortgage...

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

why.

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.

Well I have the original mortgage on my house.

And that caused housing prices to go up.

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

I suffered from my mortgage loan.

So what I do is I set up a Special Purpose Entity, which is really just a corporation that I set up.

What does it mean, derivative?

Now what are my liabilities?

Right?

This is really the tip of the iceberg.

It's only worth 100,000 now.

We all have heard of it.

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

And for the sake of simplicity, I'm going to assume that the loans in this presentation are interest only loans.

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.

So, each of these is an investor.

And why does that matter?

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

I paid off the mortgage when I got my promotion.

But for the simplicity of this argument,

Remaining mortgage on the home, 1 07,000.

And what are they?

They sell it to Bear Stearns.

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

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.

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

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 .

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

I'll do kind of a more complicated one.

And let's say, I don't know, a year later I lose my job.

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