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Once upon a time there was a Wonderland where….
… ..Housing Prices were increasing….. … .and more and more money was available
Some smart people in Wonderland invented a Money Making System which worked in the following way:
The Subprime Lender raise a lot of money which…. … via their Broker goes to hardworking people who suddenly can buy a house Subprime Lenders Broker Private Real Estate Purchaser
These hardworking people are very happy because they never thought they can buy a house….. … but thanks to the Money Making System of the Wonderland they now have their own house! Private Real Estate Purchaser
The Subprime Lenders are very smart guys, they don’t want to have the risks of the mortgages they are giving…. … .that’s why they are selling the mortgages to a Wholeseller Subprime Lenders Subprime Mortgages Wholesellers
But the Wholesellers are also smart guys and are selling the mortgages to the Investment Banks…… … .who are buying all kinds of mortgages they can get! Subprime Mortgages Wholesellers Investment Banks
The Investment Banks have the smartest guys and they have the great idea to create new products…. … .which are called Collateral Debt Obligations (CDO’s) or Mortgage Backed Securities (MBS) Investment Banks CDO’s MBS Investment Products
CDO’s or MBS are basically a basket of different mortgages of different credit ratings Investment Banks CDO’s MBS Investment Products
Thanks to the Rating Agencies the new products get really good ratings….. AAA Investment Banks CDO’s MBS Investment Products Rating Agencies
… And because of the good ratings banks can now sell these products to all kinds of investors. Buying High Return Investment Banks CDO’s MBS Investment Products Investors
And so a system was created in which everyone was very happy……
A real storm hits Wonderland….. … .destroying the so wonderfully working Money Making System. The citizens of Wonderland are now losing a lot of money and getting very unhappy!
The storm hits Wonderland much harder than anyone would expect….. … .and shakes Wonderland to its very foundations.
However, like after every storm, the sun will once again shine over Wonderland…. but the citizens of Wonderland have to realize that the promising dream of the Money Making System is a dream too good to be true…
.... and only hard work will make them live Happily Ever After.
If this story would have been told two years ago it certainly would have been hold as a fairytale. No one could imagine that such a crisis was possible. Unfortunately this fairytale turned into reality and we experience one of the most severe financial crisis since 1929. The crisis will go over and the economy, housing prices and stock markets will start to rise again. However, the end of one crisis is the beginning of the next one. Unless a lesson will be learnt…..