[scooble]

There seemed to be a sudden shift in the middle where we went from ‘it’s good for banks to lend people money to start taco stands’ to ‘it’s good for banks to take bets on how many people will default on their mortgage’. To my untrained eye these look like very different activities .

[kqr]

Think of it this way: any economic activity that depends on future outcomes is effectively equivalent to a bet. Lending money is betting the debtor will not default.

Making the bet about many people instead of one is, ostensibly, a way to lower the risk and thereby make the odds more palatable to a wider range of investors. Translation: more effectively move money from where it sits to where it will do good.