Question about the Big Short

[Pendrench]

I apologize if this is a really basic question, but I was wondering about one of the points made in the below clip.

When explaining how mortgage bonds consist of tranches, Jared Vennett says that AAA bonds get paid first, and the lowest rated BBB bonds get paid last....that all makes sense.

But then he says that the BBB also "take on defaults first"...and I'm not sure what that means.

So any additional information/clarification would be greatly appreciated.

Thanks in advance!

Tim

[Snackshack]

1. I think

I think he means that in a historical sense the BBB tranche bonds are the ones that will start to default first before the AAA bonds. At least that is how I understood that to mean when I watched that movie. I could very well be incorrect.

The Big Short was a very good movie. If you liked that I would recommend “Inside Job” about this same event narrated by Matt Damon. Fair warning if you do watch it do not have anything close by that can be thrown at the TV...it is very frustrating to watch.

[Mike 03]

2. That's how I understood it too.

The BBB tranche is comprised of lower quality mortgages that were more likely to go into default.

[Pendrench]

4. Hi Mike 03 - thank you very much!

I knew I could count of the good folks here to help me

Best to you and thanks again -

Tim

[Pendrench]

3. Hi Snackshack - Thank you very much!

That makes sense, especially in the context of what was going to happen.

I actually recorded "Inside Job" so I will try to watch it this weekend

Best to you - and thanks again.

Tim