Arnold
Tash Jayasinghe
CibbuanoHow Subprime Works (in stick figures!)
March 13th 2008 00:54
Unfortunately, the Subprime mess is a tough nut to figure out... at its simplest, the housing boom of the past few years has ensured that new homeowners would be able to make a significant return on buying a new house. Since the house prices were guaranteed to go up, mortgage brokers were willing to give out loans to people who didn't qualify.
These loans were bundled together into fancy investments - when the loans started defaulting, the investors lost their money. The most nefarious part of the scheme is that it would seem that mom-and-pop investors, who placed their trust in a fund, lost money because the money was invested in risky mortgages.
It's like betting that the squabbling couple down the street, with all the credit card debt and the new Mustang would be able to meet their payments. Uh oh.
That's only as far as I can understand it, and I learned it all from the Stick Figure Subprime Primer.
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