On: Luna Cryptocurrency Collapse: How UST Broke

[not2b]

Those weren't AAA mortgage securities that went bust in 2008, though some were fraudulently marketed as such. They were liar loans on second-rate properties chopped up into a bunch of tiny pieces and re-sold, based on the notion that real estate would only go up forever, so if people failed to pay the lender would foreclose and own real estate with more value than the original loan.

Seems similar to some methods of stabilizing a "stablecoin": back it by a traditional cryptocoin and assume that this other coin can only go up.

People who had only bank deposits didn't lose anything.

[DennisP → not2b]

Those chopped-up pieces of crap got lumped together in big collections which got rated AAA, because the people rating them assumed that not too many of the little pieces would fail at the same time.

[loeg → DennisP]

I think GP covered that with:

> though some were fraudulently marketed as such

[DennisP → loeg]

I don't think what I described was entirely fraud. I think people honestly underestimated how correlated the failures could become.

(But I won't deny that there was also fraud, and economic incentives for inflated ratings.)

[anm89 → not2b]

Dead wrong. This is the major take away from 2008 that has been widely reported on in pop media. The junk was repackaged so it could be stamped AAA