Matt Levine’s Money Stuff: Now There’s a Mortgage Crisis Too

Programming note:
Money Stuff will be off tomorrow, back on Thursday.

Mortgages

The traditional banking system goes like this:

1. You put your money in a bank account. It pays a little interest. You can take your money out any time.

• 2. The bank lends your money to your neighbors to buy houses. They pay interest. Their loans are due in 30 years.

This largely works—most depositors don’t want their money back at the same time, the mortgages pay higher interest than the deposits, etc.—though the problems are well known.

The modern banking system goes like this:

1. You put your money in a ...