These are the people who first lose money.

And of those 20 that default, we have a 50 recovery.

They serviced the loans.

So the 300 million from equity, they're going to get 55 million assuming that there are no defaults or pre payments or anything shady happens with the securities.

Now let's say it gets even worse.

But this I just want to show you some data here.

What is your strategy in your household?

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

Some percentage of these borrowers are going to default on their mortgage.

It allows let's say this group of borrowers let's say this pool of borrowers right here actually didn't

So, each of these is an investor.

That man borrows money from many lenders.

That man is a heavy debtor.

That man has many debts.

We would just know that there is a 20 chance.

You're still solvent.

The bank was profitable.

They would actually owe this extra 1 million.

We would create incentives for securitization.

Payable to the City of San Francisco.

Helps bring it down.

You have 189,000 as the value of this equity.

So that's bankruptcy.

You go get bankruptcy protection.

This guy, he does have interest.

That's not always the case.

It can do it through debt or equity.

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

Over the next few years big decisions will be made in Washington on jobs, the economy, taxes and deficits, energy, education, war and peace.

So it's only 10 , indefinitely, if all of the borrowers pay all the money and never default or anything like that.

External debt something that I can tell you a long story about because I personally worked on one of the biggest debts on the continent has come down dramatically.

I know I've overdrawn this picture a little bit too much.

So we still have the same amount of debt.

There's no law that says, you know what, if you insure a billion dollars of debt, you have to put a billion dollars aside.

And this is what this mortgage backed security market allows.

Because the government now owns 90 something percent of the company.

Have a surplus? Take two tax cuts, roll back some regulations and call us in the morning.

It's exciting, but we went over our finances and...

So it buys, it buys debt.

That's where the 1 billion comes from.

But you can assume statistically, and since this is a large number of borrowers it's 1,000, right?

You can sell shares.

And so when the Federal Reserve or any Central Bank prints money, and it buys debt, it goes out into debt markets and it buys it, it usually buys the safest kind of debt, but that affects all of the debt markets, it goes out and buys in the debt market, they're essentially shifting the supply curve of money to the right, they shift the supply curve to the right.

Our economy grew from 2000 to 2007 on the back of consumers massively overborrowing.

And because it's a junkier rating, no one is going to want to buy it.