Post #4094997
2026-07-25 10:46 UTC
These pieces were recombined according to complex mathematical formulas that supposedly "proved" that the default risk from poor borrowers had been "offset" by combining them with other borrowers' loans and wrapping them in opaque insurance contracts.
Those subprime mortgages came with cheap "teaser rates" - the interest rate you paid over the first couple years - but then the interest payments "ballooned" to farcical sums that borrowers had no hope of repaying.
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Replies (1)
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@pluralistic@mamot.fr 2026-07-25 10:46
Those farcical sums were the risk premium. When financier transmuted these high-risk 30-year mortgages into complex derivatives, they were effectively promising their customers a piece of that risk premium for 28 out of the 30 years that the mortgage ran for. But it wasn't all financial engineering: subprime mortgage salesmen could also promise customers that they wouldn't lose everything even after a wave of borrower bankruptcies and defaults. 10/