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luchonacho
luchonacho
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I just watched the film 'the'The big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be issued and sold by opportunists to investors who were blinded to their junk value.

One key thing that I feel though is brushed over though is what the market for derivatives on the mortgage industry looked like at that time, and how the eventual defaults on the mortgages caused this to 'collapse'. They claim that the derivatives market had grown to 20 times the size of the market itself. According to the film,

"if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button",

if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button

but what did these derivatives look like? I understand how someone may invest in a mortgage, which is money lent that will have to be written off in case of default. But how did the actual defaults magnify in the event to hit investors twenty fold? What were people investing in on top of the mortgages themselves? And why did these objects all necessarily become junk when the mortgages themselves did?

I just watched the film 'the big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be issued and sold by opportunists to investors who were blinded to their junk value.

One key thing that I feel though is brushed over though is what the market for derivatives on the mortgage industry looked like at that time, and how the eventual defaults on the mortgages caused this to 'collapse'. They claim that the derivatives market had grown to 20 times the size of the market itself. According to the film,

"if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button",

but what did these derivatives look like? I understand how someone may invest in a mortgage, which is money lent that will have to be written off in case of default. But how did the actual defaults magnify in the event to hit investors twenty fold? What were people investing in on top of the mortgages themselves? And why did these objects all necessarily become junk when the mortgages themselves did?

I just watched the film 'The big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be issued and sold by opportunists to investors who were blinded to their junk value.

One key thing that I feel though is brushed over though is what the market for derivatives on the mortgage industry looked like at that time, and how the eventual defaults on the mortgages caused this to 'collapse'. They claim that the derivatives market had grown to 20 times the size of the market itself. According to the film,

if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button

but what did these derivatives look like? I understand how someone may invest in a mortgage, which is money lent that will have to be written off in case of default. But how did the actual defaults magnify in the event to hit investors twenty fold? What were people investing in on top of the mortgages themselves? And why did these objects all necessarily become junk when the mortgages themselves did?

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Aerinmund Fagelson
Aerinmund Fagelson
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How did the derivatives market 'collapse' in 2008?

I just watched the film 'the big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be issued and sold by opportunists to investors who were blinded to their junk value.

One key thing that I feel though is brushed over though is what the market for derivatives on the mortgage industry looked like at that time, and how the eventual defaults on the mortgages caused this to 'collapse'. They claim that the derivatives market had grown to 20 times the size of the market itself. According to the film,

"if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button",

but what did these derivatives look like? I understand how someone may invest in a mortgage, which is money lent that will have to be written off in case of default. But how did the actual defaults magnify in the event to hit investors twenty fold? What were people investing in on top of the mortgages themselves? And why did these objects all necessarily become junk when the mortgages themselves did?