Here's a bit more about mortgage securities. Let's break it down a bit. You go to the bank because you want to buy a house, but houses cost a lot of money, and you don't have a big pile of money sitting around to buy a house so you're going to need to borrow some. The bank gives you a loan because lending guidelines are being completely ignored, so you get your big pile of money which you give to somebody else for their house. You now "own" a house. The bank owns an IOU.
IOUs are a pretty lousy thing to own, especially IOUs from people you haven't verified have any income.
So the bank wants to get rid of this IOU, the issue is that everyone else knows that an IOU is a shitty investment. So the banks decide to bundle a whole bunch of mortgages together, with the idea that even if one or two people default on their loan, there's a bunch of people that will still pay, so it'll be worth it. These bundles then get bought up by all sorts of investors (not just foreign investors, but things like teachers' pension funds and the like).
Are you saying teacher's pensions are funded by bullshit home loans? That's like the cartoon where the guy is stranded on an island and starts thinking his foot is a mutton leg and gnaws on it.
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The bank gives you a loan because lending guidelines are being completely ignored, so you get your big pile of money which you give to somebody else for their house. You now "own" a house. The bank owns an IOU.
IOUs are a pretty lousy thing to own, especially IOUs from people you haven't verified have any income.
So the bank wants to get rid of this IOU, the issue is that everyone else knows that an IOU is a shitty investment. So the banks decide to bundle a whole bunch of mortgages together, with the idea that even if one or two people default on their loan, there's a bunch of people that will still pay, so it'll be worth it. These bundles then get bought up by all sorts of investors (not just foreign investors, but things like teachers' pension funds and the like).
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