re: #581 subsailor68

No, it’s not the default on the mortage. It’s the fact that that mortgage now represents an entirely different investment. I don’t really know how to put it, but here’s a quick analogy:

I lend you $20, even though I know you have money issues, and we live in a town with only one large employer

I lend seven hundred other people $20, even though I know they have money issues and we live in a town with only one large employer.

I package all of those loans together and sell them to someone else, as a low-risk investment because what are the odds of all those people having money trouble at the same time?

Then the plant closes. The loans aren’t going to be paid back. The people who invested in them are going to lose all their money.

So, assigning the ‘trigger’ is tricky. You could say the trigger was you not paying me back, but that’s really the least problematic part. The problematic part is the whole thing being set up on the false idea that the risk of default was something that was lower the more people you had in the pool, instead of defaults being something that can happen in massive waves. Mortgages are the exact wrong thing to package like that.

Or, to put it another way: the giving of the loan was the trigger than started it all. But what made the meltdown so terrible was the way everything was packaged.