What Caused the Housing Bust (7)

Continuing to borrow against their RMBS inventory

a) Insurance companies,

b) banks, and

c) brokers

were able to earn higher returns on assets by buying

i) RMBS,

ii) CDOs, or

iii) ABSs instead of Treasury bonds or AAA-rated corporate debt.

And because the collateral was considered AAA,

financial institutions of all stripes were able to increase the size of their balance sheets by continuing to borrow against their RMBS inventory.

This, in turn, supplied still more money to the mortgage market, which kept the mortgage brokers busy.

Remember all the TV ads to refinance your mortgage and the teaser rate loans?



By Porter Stansberry