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Finance: What does securitized mean? 1 Views
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Description:
What does securitized mean? Securitized is the completed method by which a financial institution’s debt is assembled into an instrument, such as a bond. It is packaged in compliance with regulatory rules to be sold to the public, and thus the institution’s balance sheet is freed up to use the loaned capital for additional transactions.
Transcript
- 00:00
Finance allah shmoop What does securitized mean Well it happens
- 00:08
when you make a security out of clay or mortgage
- 00:11
bonds or debt backing two hundred thirty nine airplanes Well
- 00:14
basically when you securitize something you're creating one large thing
- 00:18
out of many small things to create liquidity and broader
Full Transcript
- 00:21
investment interest and flexibility and given category So think about
- 00:25
the most famous securitisation in history Collateralized mortgage obligations or
- 00:30
c M o's Where in a bunch of clever wall
- 00:32
street people securitized subprime or high risk mortgages created that
- 00:37
cmo security and then sold the crap out of it
- 00:40
to investors And then bad things happened when an investor
- 00:43
reviews one mortgage investment like a manny here Great guy
- 00:47
Excellent golfer manny here is a gardener He makes forty
- 00:50
five grand a year and now well meet His wife
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has moral The substitute school teacher She makes thirty grand
- 00:55
a year Well they have three kids and for somehow
- 00:57
able to get a loan for seven hundred fifty thousand
- 01:00
dollars to buy this freaking amazing mansion Had one investor
- 01:04
looked at this transaction while they would have realized that
- 01:06
something was off Like how can a total family household
- 01:10
income of seventy five grand be able to pay ten
- 01:12
times that number in a mortgage Well a fudge here
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Ah fudge there a teaser rate for six months a
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sickly old uncle who promised to die soon and and
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yeah so when loans get securitized and it usually is
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loans are debt that gets securitized like this The theory
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was that there'd be less volatility less risk when lots
- 01:30
of them were pooled together in one package But in
- 01:33
fact there was on ly perversely extreme incentive to write
- 01:36
loans from the various lending institutions writing those loans And
- 01:40
there was poor management and poor governance in new well
- 01:43
poor math and also porsche moving So the subprime mortgage
- 01:46
securitized behemoth blew up famously and almost destroyed the american
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financial system Other things get securitized as well For example
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real estate holdings get securitized and what's called a reet
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or real estate investment trust which puts in tow one
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investing vehicle a whole bunch of usually aligned buildings like
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think a package of old age homes or a package
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of shopping malls or of office buildings or massage parlors
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or whatever floats your boat well the process simply makes
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one easily investable security out of lots of disconnected individual
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investments and usually that's good for everyone Everyone but this 00:02:23.908 --> [endTime] guy
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