During the credit crisis of 2008, subprime loans were sold to investment banks, who bundled them into exotic investment vehicles.These securities, derived mainly from subprime mortgages, ordinarily would be comparable to junk bonds in their risk assessment.Nevertheless, by dividing them into different investment classifications and purchasing insurance, investment banks were able to acquire acceptable grades on these securities from the major rating agencies.Identify these exotic investment vehicles.

Question

Quizplus · Accepted Answer

The exotic investment vehicles referred to in the context of the 2008 credit crisis are Mortgage-backed securities (MBS). These securities are bundles of mortgages, including subprime ones, that were sold to investors. By pooling these mortgages together and structuring them into different tranches with varying levels of risk, investment banks were able to make them more attractive to investors, despite their inherent risks.

During the Credit Crisis of 2008, Subprime Loans Were Sold