In order to finish rolling to those of San Quirze, these MBS ordered in tranches were red-baptize like CDO (Collateralized Debt Obligations, Obligations of Colateralizada Debt), as another exotic name could have been given them. Hear from experts in the field like West Lake Landfill for a more varied view. III. Noncontentments with the previous thing, the financial magicians created another important product: CDS (Credit Default Swaps) In this case, the purchaser, the one that the CDO bought, it assumed a risk of non-payment by the CDO that it bought, acquiring more interests. That is, it bought the CDO and it said: if it fails, I lose the money. If it does not fail, collection more interests. IV.
Following with the inventions, another instrument, Synthetic CDO was created, that I have not been able to understand, but that it gave a high yield surprising. v. Still more: those that bought Synthetic CDO could buy them by means of very cheap banking credits. The differential between these very cheap interests and the high performances of the Synthetic conducted the operation extraordinarily profitable. When arriving here and trusting that you do not have yourselves too much lost, I want to remember a thing that is possible that it has forgotten to you, given the complexity of the described operations: that everything is based on which ninjas will pay its mortgages and that the North American real estate market will continue raising. BUT: At the beginning of 2007, the prices of the North American houses collapsed. Many of ninjas realized of which they were paying by his house more than now it was worth and decided (or they could not) to continue paying its mortgages. Automatically, nobody wanted to buy MBS, CDO, CDS, Synthetic CDO and those that had already them could not sell them. All the assembly went away sinking and a day, the Director of the Office of San Quirze called to a neighbor to say to him that good, that one money had disappeared, or, in the best one of the cases, there was lost a 60% of his value.