So, here's what I do for a living. I create computer-based training for a very ethical and fiscally conservative Financial Services firm. You may recall that in 2010 I have to take my Series 7 stockbroker test to be able to do my job. It was hard, especially since I have poor math skills and duck my head at conversations about money.
In this post I mentioned obliquely how hard I found the Series 7 and quoted one of the harder things I had to study: tranches.
PACs (planned amortization class) are CMOs insulated from prepayment risk by "swing" tranches called companions or support bonds, which are retired before PACs if prepayments are high, and after PACs if prepayments are low.
Oh. Are you still with me? How much of that paragraph did you read? If I recall, I read that paragraph at the time and said, "Well, I'll be getting that question wrong."
Gary and I went to see The Big Short - a movie, if you can believe it, about CMOs (Collateral Mortgage Obligations) and tranches. While in line I mentioned that CMOs and tranches were the hardest thing in the Series 7, and I was curious to see them explain it in the movie without putting me to sleep.
This is how they explain tranches in this movie:
Jenga. It was genius. It also pissed me off, because I'd just told Gary tranches were hard and then these bastards turn around and simplify it into a game, and I look like a moron.
At any rate, if you suffered throught the Series 7 this movie might annoy you, but if you did not, I highly recommend it. Be forewarned, though, at 53 I was the youngest person in the theater.