A significant component in teaching is transferring information in a clear and concise manner, this small lecture exemplifies the principle. firstclass.
Very good explanation and very accurate with one additional bit of information: The insurance companies who sold the credit default swaps also had insurance on those credit default swaps and that’s why it spread like wildfire.
While I understood the mechanics of how Swaps such as CDS's work prior to this video; your method of getting it across is definitely the best that I've seen.
Thanks for clarifying this in the most easy and cutest way. I love that blue barn and the way you modeling the dimes sharing between the banks and creditors. Its does help to make things clear. Even the 13 years old could understand this compex financial situation by watching your demonstration. God bless you! Love from UK.
It's so refreshing to get a simple explanation, as opposed to complicated rabbit holes intended to to make one feel stupid or out of the loop. Thank you, sir, for just making sense.
Absolutely the best explanation ever about CDSs. You made it so simple! I am sure there are a lot of technical details about these instruments, but this is all we needed to know. Thank you.
Basically they bought options that paid off majorly. First time I saw this video I could barely grasp it. Now after day trading for 4 years it all makes sense.
Wonderful, wonderful explanation. I was a real estate for eight years, and I can tell this is exactly how it all works for the benefit of the banks. I've never met anyone who owned their home. When they needed to sell it, they were always upside down on their equity and usually took a loss or just walked away from it, leaving their furniture behind. The bank would foreclose on it and wait for someone else it up.
Very simplified, but a nice starting point to understand a bit more I guess. The kicker is the fact organisations who weren't involved in constructing or selling houses, issuing mortgages or selling insurance products put huge amounts of money in the game too - a game which ended in tears of course. A few who could see the risk and problem made a lot of money though, by effectively bettering (or hedging) the game would end in tears.
This was amazing!! I've tried a few different avenues and couldn't quite get the hang of this but you out it so simply and your demonstration was awesome. Thank you!!
The fact that they bailed out banks with our money, took peoples homes anyway, yet didn't make credit default swaps illegal going forward tells you everything you need to know about who runs the show.
Thanks for this simple explanation, I´ve been watching like 7 videos that last almost 15 minutes and understood nothing, I did like this one and the concept, thumbs up :)
I just LOVE this video!! I have been trying to understand the movie The Big Short and this video just explained the whole thing! Wow, big laugh at the end too thanks!!!
I dont see why people find the concept hard to understand. Your local bank got insurance on your mortgage and the investment banks sold that guarantee insurance as an IV to investors and even pension fund managers.
Me: "Yeah dude a CDS is actually a pretty simple once u hear it explained.. Its like let's say you have insurance. Or wait you're the bank ok and I have a mortgage... Ya know what man you probably wouldn't get it."
Thanks for you explanation. Really appreciate it! Takes intelligence to take a very complicated subject and explain it in a simple and accurate way, not many can do that. Great job sir!
This is why Financial intelligence is a must in today's ever-changing economy. Whether you're investing in residential or commercial real estate or simply preparing for retirement. Financial intelligence knowledge is ever so needed today. And it's never too late to learn......
Great demonstration. The only critique I have is, when Suzie is paying her mortgage, the payment goes towards interest first, and then the principal. Sorry for being pedantic.
It really depends on the loan, the term, and the interest rate. I've had amortized loans where a good chunk of the first couple of payments still went towards the principal. But generally, yes, you end up paying more interest on the first payments.
Nice one. Also after the banks knew the risk was moved to the insurance companies, the banks realized they make money mostly on the commissions and started giving loans on applicants with terrible credit scores. And that’s when the real problem began.
The one thing you neglected to mention is that the Insurance companies were not required to have reserves to cover their exposure to CDS. This is because CDS was a fancy product designed to bypass the insurance regulations (even tho it was in fact insurance)
I've seen movie on the same topic but didn't got to know at that point of time.. and Your two minute video and i got it.. That's called Teaching. Thanks Sir .
Thanks... so a point missed here is why are they called CDS and not just insurance. Well, if they just call it insurance, part of insurance regulations stipulates you must have enough capitalization to cover them. BUT, if you set them as Swaps, then no such regulation exist. Why did they do this? It is because the whole industry went batty (and of course greedy) over all the asset backed securities (CDOs). CDS helped the industry to sell even more CDOs... especially the high risk ones (as CDOs were sliced into tranches of different grade risks). So CDS helped people feel safe buying the high risks tranches. In the movie Big Short, in one scene where Steve Carell playing Mark Baum was interviewing this client/investors representative and he asked how much did $50m mortgages generated in these derivatives offerings (CDOs + CDSs) and it was more than $1B. So normally, when there is a high percentage of people defaulting on mortgages, it would be bad but not world recession bad. But with so many derivatives offerings all built upon the mortgages, it was a chain reaction that snowballed uncontrollably and took the world economy down!
thank you so much. i have been struggling with an article for 4 weeks and could not get my head round CDS. thanks to 'Financial Toy Vision' I think i got it. cheers, from the UK.
@@AndyMillard hahaha, if only everything could be explained through the medium of toys! i am now going to finish this bloody thing and get t to the editor tomorrow. thanks again. and as we say in the UK, cheers mate!
Actually, the video is 8 years old, and you're right -- it should have been remedied by now. Congress took a good swing at it by passing Dodd-Frank, but its safeguards were largely undone a few years ago.
Damnit, after God knows how long trying to figure this thing, Andy explains it in a few mins. Andy could you have a few similarly easy explaining videos on all those bloody derivatives that are traded via markets.
