Created By:

Parshwadeep
 PARTNERS IN
CRIME
Customers FED Mortgage
Investo
Brokersrs

Investment Credit Insurers

Banks Rating
Agencies
Modus
Operandi
Bank would come out with schemes
to give loans to just anyone with the
help of mortgage brokers

Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium

Principal + interest payable over

long term
 MBS for loan
Bank would package the loan into a
security and pass on to Investment banks

Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Documents Loan +
converted to Premium
Securities(MBS/A
Principal + interest BS)
payable over long term
Investment
SIV Bank
Off balance
sheet entity
CDO
The investment banks will package
these with other securities and slice
them into different categories of CDO
Securities(
MBS)
CDO
 Certification
Credit Rating agencies(CRA) would
certify these securities
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Documents Loan +
converted to Premium
Securities(MBS/A
Principal + interest BS)
payable over long term
CDO Investment
ti ng SIV Bank
Ra Off balance
ium sheet entity
CRA rem
P
 Investors
Investment bank Structured Investment
Vehicle(SIV) will sell CDOs to the Investors
across the globeMortgage Documents
Documents
Subprime
Customer Loan Broker Loan + BANK(Lender)
Premium
Principal + Documents Loan +
interest converted to Premium
payable over Securities(MBS/A
BS)
long term
Loan + Investment
Investors Premium Bank
SIV
Off balance
Premium

CDO
Rating

sheet entity

CRA
 Insured
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Principal + Documents Loan +
interest converted to Premium
payable Securities(MBS/A
over long BS)
term Loan + Investment
Investors Premium Bank
SIV
Off balance
Premium

CDO
Rating
Insurance

sheet entity
Premium

Insurer CRA
Other linkages
Mortgage
Broker Bank

Investment
Bank

Insurer CRA
Mistakes
Wrong belief of housing prices always going up

FED overlooked warnings

Past data reference illusion

High leveraging

Miscalculated ratings fooled investors

Appetite beyond capacity

Slicing and dicing spread the risk but did not

eliminate it
Result- Mortgage
Market

Housing
market nose
Sub prime borrower
Investors
Investment
Banks

Nationaliz Bankrupt
ed
Credit Rating
Agencies
Insurers

Saved by
government
funding
 Global Equity
Markets
Lose 45% of
wealth
Money market
Confidence in
Market
Someone got
lucky!

Alternate
investment
saw a surge
LEARNING
THINK BEFORE YOU ACT
THANK YOU