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Each mortgage refinancing gave the old loan - and the CDOs covering them - immediate and safe profit, while shifting the risk to a new loan - and new CDOs.
Wall Street was probably betting on continuous refinancing. In that case subprime loans in CDOs were very attractive because they were "guaranteed" to be refinanced soon, ending all risk.
Here we see a classical element of a pyramid scheme: profit of one item is based on a generation of new items.
Exponential branching appears to be missing on the mortgage level, though typically greater size of new loans alone may be generating a commulative effect. The "slicing and dicing" routine with CDOs probably make a pyramid "complete", through a mathematical model is welcome.
Pyramid elements are floating around, and they make the CDO scheme very unstable. Like in a straight pyramid scam, looks excitingly fine until a logically unavoidable limit is met. In the CDO case, the limit is met when the real estate inflation and refinancing tricks must stop. More generally, broad economic models conspiciously lack clear acknowledgment everything of positive feedbacks, as Michael Hudson notes. We are left then with Ponzi/pyramid frazeology with every hurting runaway boom and bust.
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