Why Lehman, NYSE, et al, are Going Down

[BeFree]

Say I sold you a house and I took back the mortgage. Say the price of the house I sold you was way over valued.

I take the mortgage to an investor who gives me cash for that paper. It's called the secondary market. Then that broker sells, along with 99 other mortgage papers, all those papers to a larger investor who in turn sells a larger package of mortgages to another. Onward and upward to the top of the pyramid.

Back down at the bottom of the pyramid, you can't make the mortgage and you foreclose. And the sell price of the home is half what you paid and the paper is based on what you paid, so now the value of the paper is half what it was.

Well, the banks, et al, who bought the packages have laid out cold cash and now all they have is half of what they spent. Timber!

[knowbody0]

1. the pyramid that is our grand paper empire

devours itself now that there is nothing left to feed on.