- Nov 26, 2011
- 123,674
- 59,246
- 2,290
You don't see a problem with a $4 million risk on a $200,000 asset?!?! Really?Let's say twenty people bought insurance on your house and it burns down.
Now, instead of losing $200,000 the insurance company is out $4,000,000 on a $200,000 asset.
You have 20 people with $4 million more and 1 insurance company with $4 million less.
Why does that amplify the GLOBAL consequences of a $9 trillion mortgage market?
The companies which sold the insurance did not have the $4 million to pay out. They did not set aside any reserves or take any offsetting positions.
Boom!