Welcome to my presentation on mortgage backed securities.

Those are essentially derivative securities that are derived from mortgage backed securities.

I have a whole video on mortgage backed securities.

And they rate these assets, these mortgage backed securities.

CDOs, collateralized debt obligations, are derived from mortgage backed securities.

And so money came from when the owners of each of these mortgage backed securities each, let's say, paid 1,000 for the mortgage backed securities.

You call them stock, or stock options, derivatives, mortgage backed securities.

Welcome back to my series of presentations on mortgage backed securities.

And these shares would be called Mortgage Backed Securities. or sometimes MBSes.

Well it comes from the investors in the actual mortgage backed securities.

Mortgage backed security.

This is highly rated mortgage backed securities, maybe they have a slightly higher interest rate.

Maybe they'll buy mortgage backed securities, so it makes the mortgage market a little bit looser, a little bit more liquid.

So what is a mortgage backed security?

So that's what a mortgage backed security is.

You might just want to watch the video on mortgage backed securities and collateralized debt obligations if you need a refresher there.

And you end up with a mortgage backed security.

This is actually a mortgage backed collateralized debt obligation.

And this is what you probably read some articles about, these hedge funds with these computer models to value their mortgage backed securities.

Now let's do the example with a mortgage backed security.

And this is what this mortgage backed security market allows.

And that's why we say that it's a mortgage backed security.

But essentially what happened is the investors in the mortgage backed securities provided the money to the special purpose entity to essentially loan to the borrowers.

And I know that you have some type of assets, you have some of these residential mortgage backed securities, or you have some of these derivative assets there.

That's how loans worked before the mortgage backed security industry really got developed.

But you should watch the videos on mortgage backed securities and collateralized debt obligations, if you want to get a better understanding of exactly how the money flows go.

These were conforming loans, there wasn't this whole CDO and mortgage backed security market.

So these shares each of these one million shares this is a mortgage backed security.

Essentially you can almost fueled on interest to the owner of the Mortgage Backed Security.

This is going to be a mortgage that's going to be backed by my house.

It made a mint by selling mortgage based securities and more complex financial instruments to unwitting buyers.

And actually that's what the buyer of the mortgage backed security should try to figure out.

What CDOs are, you take these mortgage backed securities, you know, they're loans to some people in some region of the country, or maybe they're diversified across regions, then you slice and dice them.

But if you have a mortgage backed security, you can actually trade the security with someone else.

What we are going to do is go buy things like highly rated mortgage backed securities, or things like commercial paper, AAA corporate debt, so that those things, the interest on those things goes down.

They borrowed it from their local mortgage broker, who then sold it to a bank, or to an investment bank, who created the special purpose entity, and then they IPO the special purpose entity and raise the money from people who bought the mortgage backed securities.

But what you read about the most right now in the newspapers is mortgage backed collateralized debt obligations.

Or, it could even buy completely different assets, it could maybe buy mortgage backed securities, and the point here isn't just to increase the money supply the point in quantitative easing is maybe to kind of smooth over what's happening in certain parts of the market and so they thing that there's log jam in the mortgage backed security market that's why they're participating there.

The mortgage...

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Something about phony securities.

They're fairly liquid securities.

It can buy Treasury securities, so instead of short term Treasury securities, maybe it could be longer term Treasury securities.

Totally backed up.

And then each year, those borrowers are going to give the special purpose entity this is just a corporation designed to kind of structure these mortgage backed securities they're going to give 10 of the billion, or 100 million back into this.