We can see by the enormity of the financial collapse in 2008 that this was not caused by a few subprime borrowers defaulting on their loans. It was caused by the fact that the investors in the CDO's realized they were being had and stopped investing their money in these instruments
. Once the reserve funds being held by the major servicers ran out, the Ponzi system
started to collapse and the pension funds, insurance companies and money
market funds which had been buying these CDO's were on the verge of collapse
I'm not sure this makes any sense. The investors already PAID the money for the Certificates when the trust was formed. Any collapse was because in order to create these trusts they used very low standards for these loans giving a loan to anyone with a SSN pretty much. A lot of these trusts received very high ratings when they did not receive them. When a mortgage went into default the trust had that much less to pay the investors. If you were owed 1000.00 a month from your certificate and 40% of the mortgages in your trust went into foreclosure you would only be receiving 600.00.