A capital stack is a queue for losses, and the order is the whole product

The idea

Put a pool of loans into a structure and the structure does one thing: it decides who loses money first. The bottom slice absorbs the first defaults, the next slice the next, and the top slice is touched only once everyone below it is wiped out. That ordering is what lets the same pool of risky loans produce both a high-yield slice and a slice rated as safe. Nothing about the loans has changed; only the queue has. Understanding this makes most structured credit questions mechanical: ask how thick the slices below yours are, and what rate of loss would eat through them.

Seniority is a queue for losses; the thickness of the slices beneath you is your protection.

How to use it

Run the Capital Stack lab: set a loss rate on the pool and watch which tranche is hit. Then state, in a sentence, the loss rate at which your tranche starts to lose, which is the number a buyer of that tranche actually cares about.