How we cite our quotes: (Chapter.Paragraph)
Quote #4
They'd phone up an originator and say, "Don't tell anybody, but if you bring me a pool of loans teeming with high thin-file FICO scores I'll pay you more for it than anyone else." (4.46)
As the subprime market grows, it becomes advantageous for banks to find people who they know won't be able to pay them back, because then they'll make a killing off of jacked-up interest prices and fees. This scheme ends up impacting working-class immigrants more than anyone else. It's a nasty scene.
Quote #5
Here was another bizarre fact about CDOs: Often they simply repackaged tranches of other CDOs, presumably those tranches their Wall Street creators had found difficult to sell. (5.58)
If you think about this for a second, you'll realize that this is why the subprime market nearly crashed the world economy. Basically, an individual mortgage can be inside a theoretically infinite number of CDOs, which a theoretically infinite number of people can bet against. That means a single bad mortgage can cause a much larger amount of debt that its actual monetary value.
Quote #6
That was the reason the casino bothered to list the wheel's most recent spins: to help gamblers to delude themselves. (6.24)
This anecdote illustrates "recency bias," which is when a person assumes that whatever happened recently is going to happen in the future. This mental trip-up plays a big role in the ballooning of the subprime mortgage market.