Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Jim Willie CB who wrote (29115)	2/23/2003 2:39:58 AM
From: energyplay	Read Replies (1) of 74559

Thanks for the quick reply. The service fee is very small, essentially insignificant to this discussion. Fannie is not a source of funds like the 1975 bank, but mostly a pass thru . To get the money to buy the mortgages, Fannie borrowed money by selling bonds. Fannie used this money to buy the mortgage package. So Fannie has debt. Home owner has debt X - took out loan Fannie has debt X - sold bonds to buy loan Fannie's bonds are bought by somebody - the investor who supplies money to this whole chain. Could be Japanese, a hedge fund borrowing Yen at 1%, or a bank with deposits. The debt gets recycled - something that did not happen much in the 1930-1950s when these statistics originated. There is no addtitional money created (that only happens at he origination) but the nominal debt (and a corresponding asset) now exist multiple times. The way this statistic is measured, it can't handle double entry bookeeping - it just counts debt. There was a better explaination in Barron's about 2 weeks ago, along with a chart showing the rapid growth of this (nominal) debt.

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