What do banks get out of all these offers? I looked at all the fine prints in puzzle because I don’t see any benefits for the big financial firms. I trust my judgments and experiences that these are right and the end result is money earned. At the same time, I also trust in the simple fact that, the bank employs several people who are a few hundred times smarter and more experienced than me in this matter which led to the conclusion that they got something to gain from this.
Then everything became crystal clear when I reread the fine prints at the requirements section. An income higher than $35000 annually. If you repackage people in this earning category with those of a high interest, but more risky credit card holders, you can resell the debt in forms of securities and bonds.
So basically, it makes the securities in question appears to be AAA grade to a potential lender because so many people with good credit is in it and the interest return on average is high. What they probably didn’t tell the investors is that the ones with good credit are charged at a low interest, while the ones with bad credits are charged at a higher interest.
Makes me wonder, what type of trigger will cripple these type of transactions. If all the more riskier person with low credit score, which makes up the main part of the interest generated by the package, suddenly bail out. What could trigger a country wide bail out like that? Massive layoff of the basic low wage industries.