S1. What is Securitization?

[johnpaulsialafau]

Thank you. Man, who needs text books when you can watch Michael Fisher. This'll be helpful in my Finance exam. You're a legend Mr. Fisher.

[savingandinvesting]

@johnpaulsialafau Special purpose vehicle can have any name like 'Delta 2007 - 11' to refer to date of pool or mortgages. Investors buy tranches of the vehicle, i.e. for return of expected cash flows; selling bank receives the payment upfront thereby transferring the risk. Because the tranches (securitized) are more liquid than the pool, and were rated too highly in sub-prime crisis (meaning lower required yield) price in aggregate of the pool was higher once securitized. Hope that helps.

[SalsabilSaeed]

simply excellent

[EmporiumCosmetics]

Hi, I understand why the investors would want to buy the debt (secularized loans) but why the loans issuer would want to sell them? They must have sell it cheaper than the potential earnings on this loans (meaning when the whole profit is paid off) in order to make it appealing for the buyer...but then they are loosing out on some of the profits...no? why would they want to do that? is my understanding totally wrong? thanks

[iamtallerthanher]

Pardon my ignorance too, but I just can't see where money is made? If a financial institution provides loans of say total 100k @5%, these now appear as assets on their BS. If pooled together (even with their varying risks,but I assumed a standard rate of 5% for the example), and put in a "seperate vehicle" what name goes on this "vehicle"?; how are these then "sold off"? Also, are these loans sold off @ >5%? Effectively all I want to know is how do all parties make money? Also thanks for videos.

[savingandinvesting]

@iamtallerthanher Special purpose vehicle can have any name like 'Delta 2007 - 11' to refer to date of pool or mortgages. Investors buy tranches of the vehicle, i.e. for return of expected cash flows; selling bank receives the payment upfront thereby transferring the risk. Because the tranches (securitized) are more liquid than the pool, and were rated too highly in sub-prime crisis (meaning lower required yield) price in aggregate of the pool was higher once securitized. Hope that helps.

[88Baebae]

Your shit loads better at explaining securitisation than my lecturer.

[PresidentMugabe1990]

it all makes sense, i guess, i see how it would benefit the lenders to spread the risk but how does securitisation benefit investors who are just buying the loans off the lenders? how do investors benefit from this?

[savingandinvesting]

The lender/buyer of the securitized loans is investor. Greatest benefit to borrowers is/was that repackaging allowed more money to be borrowed as loans could be offered to more types of investors. Many investors bought them was as return was high for rating - for example a AA rated securitized product might provide better yield than other AA rated bonds. (In 2008, often the securitized bond turned out to be perhaps more risky than the rating indicated and defaults occurred). Hope that helps, MF.

[roporolo]

Slightly confusing in places but overall that has really helped me to understand what securitization is. am currently doing an assignment which involves me saying why the recession happened and that has finally helped me to understand what its all about. thank you!

[Sun4Niebieskieoczy]

Hi, this is youtube at its best, don't you think?

Did you get to the somewhat key role played by Morgan Stanley in floating the CDS? If so what do you think about it?

[vohne]

great explanations, very clear. However may i make a constructive criticism, you repeat a lot of things that sometimes I think the video has sort of glitched backwards and replayed a section. But aside from that, thank you!

[nervs777]

so if the the people dont repay there loans is it the investors that go round the house kick em out

[hopsuli]

Thank you! A concise and clear explanation on Securitization : Semantics, semantics, semantics.. "Securities" indeed.

[TheSheik154]

Pardon my ignorance....

What does "transferring the loans to a separate vehicle" entail?

[savingandinvesting]

It means taking the loans off the balance sheet of the banks for example and putting them into a separate entity against which securities can then be issued so that investors can purchase pieces of this pool of loans for example by purchasing pieces of this new entity or vehicle. I hope that helps - best regards, Michael.

[TheSheik154]

Thanks : )

[yasmine880]

so if im the financing company and i made a loan of 100,000 $ i would sell this loan at its fair value which is 100,000 or wat? what's the gain from selling this loan to investors other than liquidity.. should i take a part of interest too as investors. or where's my financial gain?

i hope u understand my question and reply me ASAP :)

thank u

[iamtallerthanher]

@yasmine880 this is exactly what I don't understand

[yasmine880]

so if im the financing company and i made a loan of 100,000 $ i would sell this loan at its fair value which is 100,000 or wat? what's the gain from selling this loan to investors other than liquidity.. should i take a part of interest too as investors. or where's my financial gain?

i hope u understand my question and reply me ASAP :)

thank u

[Lvankov]

@TheSheik154 : The separate vehicle is usually called a special purpose vehicle (SPV) or a special purpose entity or company (SPE, SPC), which is being specifically created so that it could issue new stock with the very loans being the underlying. This would reduce the risk of bakruptcy and thereby obtain lower interest rates from potential buyers.

[okrh2]

Michael,

Please don't stop making these videos. They're actually life changing. I've been recommending them to a lot of people who have until now - like me - felt totally out of their depth on this stuff.

Cheers.

[liyans1]

thank you!i had an econ exam today and all your videos really helped me =)

[MpLMx]

Michael,

Very good reference for financial literacy purposes.

Thank you.

[arabiantxn]

you get AAA rating for your channel