 Hey guys, it's MJ the student-actry and in this video I'm gonna be talking about a mortgage-backed security that was created back in 2007 before the crash Interesting thing to note is that this is for some really big money Let me look how big these chunks are and we see that they're rated a a a by Moody and all of these guys, you know, this is what caused the financial recession. These things had triple a Graded like rating and yet they all blew up. I mean if we even just look here We go to Moody's website. I was looking at it over here. This is 23rd of September. So this is recently They've downgraded this blue granite investment number four to I think it's like a classy You know, they've really downgraded it to Yeah, these like B status It's they've basically realized that the key assumptions they made was all wrong and that these guys basically stuffed up So all the where we here we go back to the little actual document So I went through this document. It was interesting because this was something that got triple a status It is one of those things that caused the world recession mortgage-backed securities I went through the document. These are the various tranches that you have Issued by standard bank who's the ranger and dealer and look you you have to have like a little legal tea because this was a Monster of their document. So they create what they do is that so it's issued by standard bank But they create a separate company called blue granite. So if this the whole thing tanks Standard bank is protected. They create special purpose vehicles to be bankrupt remote Now as you can see, there's quite a it's quite a heavy document I mean This is this is them trying to explain it in a little diagram You can see very complicated how everything goes around Essentially what they're doing is they taking home loans. They chopping up the home loans They're and they're splitting it through some financial engineering to make new securities If you want like a better or more detailed explanation that I did write that little textbook That goes through it quite, you know thoroughly and explains everything This is just interesting to see look at all the different program Sorry, all the different parties that are needed in this deal. I mean quite a lot of parties This is what I love look at all the various documents. They need Program memorandums are trusted trusted of this memory of articles You can see it goes on there's like 34 Documents for this thing. I mean derivative contracts custodian agreements I mean, this is the boring boring side of finance is doing all this paperwork And they talk about the issuers This is interesting. So you see they they're like, oh, we've got these auditors I'll show you the audit report at the end is quite a joke Then they've got this okay, then they gave standard banks financial earnings like oh, look how great we are blah blah blah Then they give all this type of stuff. This was important They talk about the home loan pool Funnily enough with historical data. They tell us that 78% of these people are not self-employed And I'm thinking to myself. I don't actually care about that stat I care about how many of these people are unemployed How many are unemployed? Why are you telling me 70% are not self-employed? And how can you be self-employed? Employed means you work for someone. So that's like a bit of a an oxymoron there Why don't you say these people are sole traders or have their own businesses self-employed does sound quite weird anyway They speak about eligibility criteria. You know, that's all important blah blah blah blah They give all of this Boring boring documents here. It's about the cash management. You know, that was also quite boring This was interesting like the size of the loans you can check how big I mean, this is not for your average everyday investor This is for institutional investors who've got access to pension funds to purchase these these things That was also boring boring Revolving period guaranteed home loans. Oh, well, I thought was quite great I didn't know where we thought but Standard Bank They say they set up their own their own people valued the houses and they get a set the interest rates So they're controlling quite a lot of Components in the steel they can say oh, no this house is actually worth 10 million And I mean one of the things with property is that it is a subjective Well, there is you know room for subjectivity when it comes to the valuation. So for them to do the Valuing of the housing I thought was quite dodgy also the fact that they set the interest rates and they can't it's variable So every month they can fluctuate these interest rates on these poor homeowners. So I don't think that was too cool Just trying to think we are read that you can see it was a big long Document originally I made a video where I actually went through the whole thing But there was 39 minutes long I don't think anybody's gonna want to watch that because you know YouTube it's all about 10 second cat videos I wanted to show you Hold on. Let's get to the actual details. I thought we're quite funny This is where they're talking about Iceland and Ireland and euros and like this is a South African instrument Anyway, this is all boring stuff to do do do do want to show you Right at the end some of the interesting stuff Okay, there we go Yeah, so this was how the the asset pool stratification, you know how the assets have been split up Was interesting that the largest chunk was for loans between five hundred thousand seven hundred fifty. I mean Yeah, the the houses that you can buy with that in South Africa. It's quite interesting That target market that they've gone for I thought this was a big big red flag that majority of these loans are For ninety five to a hundred percent Value of the loan just as well. They didn't get anybody over a hundred percent. I mean that would have been really dumb but again the loan to value Standard Bank are issuing the loan and they're saying what the value of the house is, you know, they can say, okay Here's a million by the house. Okay next week. Oh now the house actually with two million now, you know Then they came so ready these numbers I can't trust them too much but already at ninety five percent That's how much of the loan you're giving at thirty four They don't do that anymore after the remit. This is a contract before the recession This is before everything went haywire They will not give such a high loan to value anymore because this caused big problems Also interesting to see is that these loans do make up a big chunk of the people's incomes So that was also quite concerning as well the interest rates I mean, they were some of them are quite high but borrower's income I Mean, you know, this is interesting. They I mean, it's the majority of these loans are going to To poor people and I think you know, they're getting hit with heavy interest rates It's making up a big chunk of their their repayments So they're very much dependent on these loans And the fact that standard bank can just change the interest rate in any time that they want can really mess with the Budgeting of these people. But this is what I left. I loved chat borrowers age. Okay, they've got everybody's different age Groups and everything and then look 200 people They don't know what their ages to hunt they gave they gave loans with a hundred almost a hundred what yo 150 million dollar Oh, sorry rants 150 million ran to people whose age they don't even know Which means these people didn't even show an ID document because on your ID document you can use the first six digits to work out somebody's age so What on earth? Were they doing like unspecified? How can you not know your borrower's age? How can you give them a whole credit score and do all these eligibility criteria and this whole Underwriting process that they speak about in their document and then for 200 people they don't even know how old the person is That I thought was crazy. Okay, but it gets even worse The geographical distribution most of it is in captain Then another little big chunk is in the Western Cape best best province in the world love the Western Cape But yeah, I love this so now what are people using the loans for so most of them are using it as their main residence 105 of them they don't know they don't know what the people are gonna use the money for unspecified what what does that mean so What's this telling us this is telling us that only what we've learned from this document is only 78% of these people are Not self-employed whatever that means so it means what the other 20? I don't know. That's just that's a dodgy stat Two of a hundred of them. They don't even know who they are and then of those maybe half of them They don't even know what they're gonna use the money for How is this possible? Oh my gosh, this is insane. How there's how can they even have an unspecified column where people don't even know What the mountains for they should have just said other why can't they just say other? But John that is absolutely crazy They're giving 200 loans to people who they don't even know how they are they could be Teenagers for all they know and they could be spending it on playstations. I mean this is this is a big red flag And this got a triple a rating this got a triple a rating anyway I wanted to show you the one one final part with the auditors report Yeah, so this is the auditors report, okay Like this our review revealed nothing which caused us to believe that the issuer will not be in compliance with the relevant provisions Blah blah blah blah blah blah. Okay, so you read the findings and you're like, oh, okay So everything seems to be in order But you read their scope our review was generally limited Limited to an examination of just the program memorandum and the transaction supplement Okay, it should be recognized listen to this it should be recognized that our review did not Considuit an audit and may not necessarily have revealed all material facts Yes, because if you had done an audit you would have asked Who are these 200 people who we don't know and who are these hundred loans where we don't even know where the money's going? I mean come on seriously what? this is But this is hidden in how many pages of documents a 69 page document with the most boring English ever So unless you actually have got time to read through and question everything I mean come on come on. This is is this like a joke, but anyway, that is That's this whole blue granite thing This was a mortgage-backed security instrument before the crash And I mean just reading that document you have to ask yourself questions How did this get triple a rating to begin with and why is moody only downgrading it now? I mean finance sometimes you study the subject and it raises up way more questions than answers Anyway, let me know what you guys thought of this video and thanks so much for watching. Cheers