1. 2. A loan that permits a borrower to offer his or her home (or their equity stake in it) as collateral in case of failure to repay the loan

c. Credit default swap

d. Subprime buyer 3. A security that is effectively an insurance policy against defaults related to MBSsand CDOs 4. A would-be home-buyer whose credit-worthiness is suspect because he or she already has a high level of debt and/or a low income and/or a poor credit record

e. Home equity loan 5. Benefits that occur when the long-run average cost of production falls as the size of the enterprise increases

f. “Laissez faire”

6. The central bank purchases securities from banks and credits them with fresh reserves g. Economies 7. An investment product that packages together numerous assets, including MBSs of scale h. Too big to fail i. Moral hazard j.

“Quantitative easing”

8. Doing nothing 9. A security composed of a bundle of many home mortgages issued by independent banks 10. The lack of any incentive to guard against a risk when you are protected against it