On p. 74 of Michael Lewis's classic he writes:
Back in the 1980s, the original stated purpose of the mortgage-backed bond had been to re-distribute the risk associated with home mortgage lending. Home mortgage loans could find their way to the bond market investors willing to pay the most for them. The interest rate paid by the homeowner would thus fall.
Can anyone explain what this means?
By selling mortgage backed bonds, wall street essentially made interest rates lower for the American homeowner? I'm not sure how this works. Securitization = lower risk = lower interest rates? Can someone explain this one to me?
This sort of reminds of a scene from Margin Call where one of the Sr. traders (played by Paul Bettany who is just absolutely fucking brilliant) is driving around this junior analyst guy in an Aston Martin and he says something like: "If people want to live with their fancy cars and houses that they haven't even paid for. Then you [Wall St.] are necessary. The only reason people can live like kings of because we are tipping the scales in their favor."
Submitted July 15, 2018 at 10:02PM by narkflint https://ift.tt/2upYD3R
