v. Moreover, those who bought the Synthetic CDO by bank loans could buy cheap. The difference between these interests very cheap and high yields of Synthetic operation was extremely profitable. At this point and hoping that ye are not lost too much, I remember one thing that you may have forgotten, given the complexity of the operations, that everything is based on the ninjas pay their mortgages and the housing market U.S. will continue to rise. BUT: In early 2007, U.S. home prices plummeted. Many of the ninjas they realized they were paying for your home more of what is now worth and decided (or could not) continue to pay their mortgages.
Automatically, no one wanted to buy MBS, CDO, CDS, Synthetic CDOs and say that they had failed to sell. The entire assembly was sinking and one day, the Director of the Office of San Quirze a neighbor called to tell him that good, that money was gone, or, at best, had lost 60% of value. 8 Commentary: Go now to explain to the resident of San Quirze what the ninjas, the Bank of Illinois and the Chicago Trust Corporation. You can not be explained by several reasons: the most important, because nobody knows where that money. And when I say nobody, I mean NOBODY.
But things go further. Because no one-not-know the crap they have in banks that bought mortgage packages, and as anyone knows, the banks start to not trust each other. As they trust when they need money and go to the interbank market, where banks lend each other money, or not providing it or lend it expensive. For even more details, read what Ashton Kouzbari, Dallas TX says on the issue.