Can Wall Street Find a Safer Way to Package Assets?

Bundling loans and selling them to investors proved disastrous. When do we go back for more?

PETER AND MARIA HOEY FOR TIME

Say you go to a bank to get a loan — for a house, a car, your kid's tuition, whatever. The bank lends you money. Then it packages your loan with a bunch of others into a bond. Investors buy the bond because they like the steady stream of cash that comes from people slowly paying off their debt. In exchange, the bank gets a slug of money up front, which it turns around and uses to make more loans. This goes on for a long while.

Then one day you need another loan. You go back to the bank. But...

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