⌛ Background:

Federal Reserve(美联储) 👮 chairman lowers interests rates to 1% to keep economy strong.

Investors 👨‍💼: NO THANKS.

Wall street 💸: BORROW me money!

⚖️ Leverage(杠杆):

Borrowing money to amplify(放大) the outcome of a deal.

🍊Ideal Trade Process:

A family 👪 want a house and save the down payment(首付). "We have our own house!"

Mortgage Lender(房贷公司) 🏭 lends them money.

Housing price has been rising practically forever!

Wall street 💸 borrow millions of dollar to buys the mortgage from the Lender 🏭. Wall street creates Collateralized Debt Obligation(债务抵押债券). It is divided into three slides.

Safe - 3%, Okey - 7%, Risky - 10%.

Investors 👨‍💼buy CDO according to their needs. "Much better than 1% interest in the bank! We want MORE!"

Wall street 💸repays the loans to the bank.

🤢 Disaster:

When families 👪 default on their mortgage(无法偿还贷款), the Lender 🏭gets the house.

The Lender 🏭 gives money to these less responsible families 👪who are less likely to repay the mortgage. Prime Mortgage —> Subprime Mortage.

Poor families 👪default on their mortgage so they sell their house. Now there are so many houses for sell on the market.

Those families 👪who can afford their mortgage walk away from their house because they do not want to pay back their $30 mortgage when the house is worth $9.

Housing price plummets!