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

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.

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.

The mortgage payment, we calculated that before, using our mathematical knowledge of geometric series.

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?

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

This is annual insurance, for things like hazard insurance, and flood insurance, earthquake insurance, or whatever insurance you need where you live.

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

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

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.