Post #4094998
2026-07-25 10:46 UTC
Remember the subprime crisis? The whole point of collateralized debt obligations and swaps was to offer loans to people with bad credit - even loans they obviously couldn't pay back - without incurring a default risk. Subprime mortgages supercharged the practice of loan origination and resale (where a bank offers you a loan and then sells that loan to someone else, so your default becomes their problem) by splitting the loans into pieces.
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Replies (1)
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@pluralistic@mamot.fr 2026-07-25 10:46
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. 9/