Created By:

Parshwadeep Lahane
PARTNERS IN CRIME
Customers FED Mortgage Investors
Brokers

Investment Credit Rating Insurers

Banks Agencies
Modus Operandi
Bank would come out with schemes to give
loans to just anyone with the help of
mortgage brokers

Documents Documents
Subprime Mortgage
Loan Broker Loan + BANK(Lender)
Customer
Premium

Principal + interest payable over long term

 MBS for loan
Bank would package the loan into a security
and pass on to Investment banks
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Documents Loan +
converted to Premium
Securities(MBS/ABS)
Principal + interest payable
over long term
Investment
SIV Bank
Off balance
sheet entity
CDO
The investment banks will package these with
other securities and slice them into different
categories of CDO
Securities(MBS)

CDO
 Certification
Credit Rating agencies(CRA) would certify
these securities
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Documents Loan +
converted to Premium
Securities(MBS/ABS)
Principal + interest payable
over long term
CDO Investment
SIV Bank
Off balance
sheet entity
CRA
 Investors
Investment bank Structured Investment Vehicle(SIV)
will sell CDOs to the Investors across the globe
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Principal + interest Documents Loan +
payable over long converted to Premium
term Securities(MBS/ABS)

Loan + Investment
Investors Premium Bank
SIV
Off balance
CDO
Premium

sheet entity
Rating

CRA
 Insured
Documents Documents
Subprime Mortgage
Customer Loan Broker Loan + BANK(Lender)
Premium
Principal + Documents Loan +
interest converted to Premium
payable over Securities(MBS/ABS)
long term
Loan + Investment
Investors Premium Bank
SIV
Off balance
CDO
Premium

sheet entity
Rating
Insurance
Premium

Insurer CRA
Other linkages
Mortgage
Broker Bank

Investment
Bank

Insurer CRA
Mistakes
Wrong belief of housing prices always going up

FED overlooked warnings

Past data reference illusion

High leveraging

Miscalculated ratings fooled investors

Appetite beyond capacity

Slicing and dicing spread the risk but did not eliminate it
Result- Mortgage Market

Housing market
nose dives
Sub prime borrower
Investors
Investment Banks

Nationalized Bankrupt
Credit Rating Agencies
Insurers

Saved by
government
funding
Global Equity Markets

Lose 45% of
wealth
Money market
Confidence in Market
Someone got lucky!
Gold Price (USD per ounce)

Oct,2008

Oct,2007

Alternate Oct,2006

investment saw a 400 600 800 1000

surge
LEARNING
THINK BEFORE YOU ACT
THANK YOU