Question

According to the movie "The Big Short", answer the following questions:

1) what the commercial banks were supposed to do;

2) what commercial banks actually did;

3) what the consequences are;

4) whether and how commercial banks' business models changed after the financial crisis.

Answer 1

a) The commercial Bank has to mortgage back security instead of selling investors mortgage.An MBS be the part of portion thousand of mortgage drawn across country as if we sell the investors it is more riskier because lots of people loose their homes but in case of MBS the bank will safeguard their mortgage.

b) The commercial banks establish the credit default swap by investing in CDOs which are collateral debt obligation.They have received AAA ratings and exacerbating the mortgage crisis.

c) The decision taken by commercial Bank was wrong and it leads to great recession due to which the wall street greed sank the global economy for years. They were wrong and it was brutal for financial sector

d) Now bank start filling MBS with riskier mortgage and they hedge the risk to enhancing the function of deutsche bank