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5:00The Securitization Assembly Line: From 5,000 Mortgages to a AAA Bond
Take 5,000 subprime mortgages no bank wants on its books. Slice the cash flow into layers, sell the safe layer as AAA, repackage the leftovers — and you have built the machine that broke in 2008.
Securitization is a factory that turns illiquid loans into tradeable bonds. A lender originates ~5,000 mortgages and sells them to a bankruptcy-remote special purpose vehicle (SPV). The SPV pools the loans and issues bonds backed by their combined cash flow. Crucially, no single loan needs to be safe — the *structure* manufactures safety by deciding who absorbs losses first.
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