What Caused the Housing Bust (6)

More layers of packaging

For a long time, this arrangement worked well for everyone.

Wall Street's banks made a fortune packaging these securities.

They even added more layers of packaging –

i) creating CDOs (collateralized debt obligation) and

ii) ABSs (asset-backed security) –

which are like mutual funds that hold RMBS.


Buyers of these securities did well, too.

Hedge funds made what looked like risk-free profits in the equity tranche for years and years.




By Porter Stansberry