Housing
Behold: The Rental-Backed Security
The investors who brought us mortgage-backed securities are now betting on housing again, with a twist.
You've heard, probably menacingly, about mortgage-backed securities. To quickly recap that innovation that helped undermine the American economy: Banks bundled mortgages from many homeowners, then offered slices of the resulting pool to investors in a financial product so far removed from a single homeowner that one missed mortgage payment posed meager risk.
The idea severed the traditional ties (and incentives) between a homeowner and her local bank. As a result, many people who shouldn't have become homeowners were encouraged to. And when a whole lot of them started falling behind on their monthly payments – spanning entire blocks, then whole neighborhoods – the resulting mess turned out to be chaotic to untangle.