Monday, October 6, 2008

Bubble Gum...

read the conversation the author has put forth between him and IIM investment banker in US...

excerpt "
Flashback to year 2003:

Me: Why do the banks sell these home loans to you guys?

Rohit: Because we allow them to keep a significant portion of the interest rate charged on the home loans and we pay them upfront cash, which they can use to issue more home loans. Otherwise home loans go on for 20-30 years and it would take a long time for the bank to recover its money.

Me: And, why does Lehman buy these loans?

Rohit: Because we get a fat commission when we convert the loans into CDOs and sell it to investors.

Me: Who are these investors?

Rohit: They include everyone from pension funds in Japan to Life Insurance companies in Finland.


Ingenuity of the markets -
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