I have a whole video on mortgage backed securities.

And you end up with a mortgage backed security.

We would create incentives for securitization.

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

But you should watch the videos on mortgage backed securities and collateralized debt obligations, if you want to get a better understanding of exactly how the money flows go.

My next presentation, I'm going to take it to a further

So that's what we're going to show you in the presentation on collateralized debt obligations.

So these shares each of these one million shares this is a mortgage backed security.

I think it's a distraction.

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

Mortgage backed security.

But essentially what happened is the investors in the mortgage backed securities provided the money to the special purpose entity to essentially loan to the borrowers.

So let's make some very simple assumptions for ourselves.

That assets, A for assets, is equal to

And this guy's an investment bank instead of a commercial bank.

That's how loans worked before the mortgage backed security industry really got developed.

But we have to start with the basics.

Some of them are going to pay ahead of time.

It should start to make a little bit of intuitive sense

Of course, if enough people start defaulting, even these people start to get hurt.

Each share in this case once again, if you believe that the assets are worth 1 million are going to be 1 million.

But anyway, this isn't the crux of it either.

I make are to the bank.

And these shares would be called Mortgage Backed Securities. or sometimes MBSes.

So this is just another visual representation that

And that's why they are called derivative instruments.

And then when we go and get the property because the

And the cash flow will come back to it.

You group them all together.

These are my assets.

You'd have to sell that loan to someone else.

Or the other way to view it is, assets minus liabilities is equal to equity, right?

The 400 million senior tranche we raised from 1000 senior securities, collateralized debt obligations.

So there's no way for him to invest in this security and to get better returns.

liabilities plus equity is equal to assets.

And then the equity is, essentially we would look at this formula.

Savings bonds.

I feel secure when I invest in stocks but not bonds.

liabilities.

And the loans are just the right on these 10 payments.

Remember liabilities plus equities are equal to assets.

They're savings bonds.

That just comes out of the definition of what equity is.

And so liabilities plus equity is equal to assets.

I'll draw it a little bit bigger.