Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: energyplay who wrote (29118)	2/24/2003 9:53:09 AM
From: LLCF	Read Replies (2) of 74559

<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.> Well, actually not exactly: 1.) FNM gets to borrow as if their debt were [practically] treasury debt. 2.) 1 above means their funding NEVER drys up. 3.) 1 above means they can simply endlessly put on a spread of long mortgages funded by debt. 3.5) Acutally you could argue FNM MUST put the spread on since they MUST buy conforming loans allowing anyone who can originate such a loan to find a buyer. 4.) FNM definitely creates liquidity and leverage that WOULD NOT HAVE EXISTED BEFORE. 5.) FNM insures about as many loans as own outright, again creating liquidity. Does FNM 'create' money??? Hell yes! Credit creation is money creation. If I remember correctly their balance sheet was nealy as large as the Feds. DAK

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