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| How can they give a loan to somebody with a dodgy credit history, and no salary verification? They could simply start handing out money at the subway station on a verbal agreement. I expect returns to be similar. | |
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Easy! Just slice up the dodgy loans, chuck them together in a financial sausage-machine with some slices of more secure loans and get a ratings agency like S&P to give them AAA investment grade ratings.
Then take them to the markets where banks facing interet rates of <4% in the major markets clamour to buy AAA rated products with a >10% return.
Everything is sliced up so the blame is shared amongst all, making sure that even if some default there's only a tiny amount of a hit. Then award yourself a fat bonus and use the profits to make yet more sub-prime loans.
Everyone's a winner baby! I can't think why nobody ever did this before