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Blindsided by Jonathan Gifford

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Repackaged Bonds

One of the key reasons why bond-holders feel comfortable in buying bonds that are based not on the success of a particular corporation (like Chrysler or Microsoft), but on debts owing to the corporations who have issued credit card loans, or car purchase loans, or student loans, is that the underlying asset is made up from the repayments of very large numbers of individuals. It is, after all, extremely unlikely that everyone will suddenly fail to make the monthly repayments on their credit card debt or their car repayment loan (though it is a certainty that a percentage will do so). These debt-based bonds were understandable, as was the level of risk involved in owning such a bond.

Sadly, long before we get to the point where ...

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