A gazillion people get mortgages from Acme Mortgage company.
Gummy Stuff Inc. (GS) buys these mortgages from Acme.
Those gazillion people pay interest on these mortgages.
That's a cash flow for GS.

Acme Mortgage company has little incentive to analyze the credit quality of the gazillion people.
They just want to provide huge loan volumes.
That's fine with GS ... we are happy to have the greater loan volume.

Why?
Because GS then assembles a bunch of such mortages in a pool.
It then sells securities, based upon the value of the assets in the pool.
A jillion people buy these securities from GS.

GS, for example, sells bonds based upon the value of the pool.
GS pays interest on these bonds because it owns the mortgages
... and the mortgages provide cash flow.

Our pool has good assets and bad assets.
The good assets give us A+ ratings for our bonds.
We are happy.
Our investors are happy.

GS also sells securitized bonds which (unlike coporate bonds) are paid back to the bond holder in a series of instalments.

These securitized bonds are traded on the market.
Since the underlying assets are often sub-prime mortgages (given to people with less-than-optimal credit rating), GS recognizes that they are very risky investments.
Because of that, GS will bet against them.
If they collapse in value, we make lots of money.

If you are interested in buying our securities, please contact us by identifying the characters: