Mortgage Securitisation

My friend was saying –

“Invest in a luxury car, it’s as safe as a house”

Then after that he said: “Go tell that to the Americans”, which was quite funny. It got me thinking of mortgage securitisation. Truth is that securitisation has been around, probably far long before I was born, so how did the Americans get it so wrong???

I have a theory, and I think these are the steps that the big financiers thought of:

Step 1: Create a Special-Purpose Vehicle/Entity

Step 2: Get investors to buy a stake in it

Step 3: Buy mortgage loan books from banks

Step 4: ???

Step 5: PROFIT!!!

If you don’t find this funny, you need to spend a bit more time on the Internet 🙂