Question

mortgage-backed securities were one of the so called toxic assets to come from the 2008 financial crisis. they were not well understood nor did anyone (or very few people anyway) know the depth and extent of their impact. why were they bad? what triggered all of the misery that followed? that is why did these instruments not work as advertised?

Answer 1

Mortgage backed securities are one of the toxic assets which were associated with 2008 financial crisis because most of the loans which were provided to the households and most of the securities which were floated on the basis of the mortgage backed securities were defaulting and it led to a financial contagian in the entire economy which will be providing with the risk of recession.

Mortgage backed securities were secured loans which were backed by Assets and there was a sense of high security because they were backed by the the real state part. There was an incompetence in part of the bank in order to lend to event those properties which has lower recovery rate and they were sub-standard and rating agency also popped them up with higher ratings.

They were not all that bad and it was a Nexus of banks and rating agencies in order to rate them higher so they could be easily floated into the market into hybrid securities in order to generate more money and higher assets but they were not the case as they are often believe it was often associated with the incompetence of the credit agencies and their investment bankers.

These instrument does not work as advertised because this is not that secured as it seems to be,because the value of real estate is quite fluctuating and they will be first to fluctuate at the times of economic crisis.