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    What Went Wrong? (The Root Cause of The Issue)

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    Christine Nathalie Balmes
    Credit Suisse invested in mortgage backed securities from other banks, repackaged them and sold them to the public at a profit. Michael Burry discovered that many of these mortgage backed securities were becoming risky investments backed by subprime mortgages from borrowers with low credit scores.

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    What Went Wrong? (The Root Cause of The Issue)

    Uploaded by

    Christine Nathalie Balmes
    20 views1 page
    Credit Suisse invested in mortgage backed securities from other banks, repackaged them and sold them to the public at a profit. Michael Burry discovered that many of these mortgage backed securities were becoming risky investments backed by subprime mortgages from borrowers with low credit scores.

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    Original Title

    What went wrong

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    Credit Suisse invested in mortgage backed securities from other banks, repackaged them and sold them to the public at a profit. Michael Burry discovered that many of these mortgage backed securities were becoming risky investments backed by subprime mortgages from borrowers with low credit scores.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    20 views1 page

    What Went Wrong? (The Root Cause of The Issue)

    Uploaded by

    Christine Nathalie Balmes
    Credit Suisse invested in mortgage backed securities from other banks, repackaged them and sold them to the public at a profit. Michael Burry discovered that many of these mortgage backed securities were becoming risky investments backed by subprime mortgages from borrowers with low credit scores.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    What went wrong?

    (The root cause of the issue)


    1. Credit Suisse invested or capitalized in MBS from other banks, repackaged it and sold it
    to the public at a profit.

    What is MBS?

     Mortgage backed securities

     It is a debt security that is collateralized by a mortgage or a collection of mortgages that is traded on


    the secondary market, and that enables investors to profit from the mortgage business without the need to
    directly buy or sell home loans.

     Lewis Ranieri was considered as the “father of MBS” since he pioneered it and was named as "one of the greatest
    innovators of the past 75 years” on 2004, but eventually strongly criticized for his role in the subprime mortgage
    crisis of 2007-2009.

    2. Michael Burry discovered that MBS are


    becoming subprime (low credit rated) investments.

    3.“Subprime”
    As Burrydoesn’t
    looked into
    refer theinterest
    to the files of MBS,
    rates oftenwhich was
    attached highly
    to these rated using
    mortgages, S&Pthe credit
    but rather scale, he found
    score of the
    out there are several mortgages rated as 110 by the American FICO score.
    individual taking out the mortgage. Borrowers with FICO credit scores below 600 will often be stuck with subprime
    mortgages and their corresponding higher interest rates.

     An S&P credit rating is a letter grade. The best is "AAA." This rating means it is highly likely that the borrower will
    repay its debt. The worst is "D," which means the issuer has already defaulted.
     Fair Isaac Corporation, or FICO, creates a variety of credit scores for use by lenders, credit card issuers and other
    creditors. Your FICO® scores — which typically range from 300(low) to 850(high) — could affect whether your
    credit application gets accepted, and the terms and rates you’re offered. The higher the FICO score, the better.

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