Well done.

Thanks. A very clear explanation.

After watching this video explanation, there seem to be three culprits:
a) People who defaulted on their mortgages
b) Investment bankers who repackaged worthless securities and sold them off as safe (e.g., AAA)
c) the investment ratings companies who didn't do their jobs and let the executives in "B" sell poor investments as good

In the above scenario, executives in B and C should go to jail, in my opinion. A fiduciary relationship was abused.

Thank you very much for your great explanation! Did insurers (e.g. AMBAC) play any role in boosting the ratings of the junk to AAA in the second securitization?

Paddy, Marketplace: Excellent, excellent illustration. I believe a step may have been missed in explaining how a BB traunche could then be repackaged and re-sold with AAA, AA, etc traunches? Any clarification would be helpful here.

Also, perhaps it would be helpful for the audience to know how this affects the banks that are involved - write-downs on these securitizations, etc.

HI Geko, Paddy here
You put your finger on it. How did they get away with selling that second pyramid of securities (and believe it or not, some bright sparks actually sold a third pyramid!)?
The answer is: bond insurance! Yes, they insured the bonds with companies like Ambac and MBIA.....and we all know what happened there. In the end, as the securities sputtered, the pressure ratcheted up on the insurance companies until they were unable to honor those contracts.

Thanks! This is wonderful to watch! I now have a better understanding regarding the issue!! I wish my college teachers are as clear as Mr. Paddy. And fun too!

Paddy, I really enjoy your impeccable presentation. Our firm audits Broker/Dealers & Hedgefund. I have a strong knowledge of the nature of CDO. However, I found it difficult to help our junior staff to get a strong understanding about the issue. I will you your video for our in-house education. Thanks so much!