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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (13204)	6/29/2003 2:28:23 PM
From: aknahow	Read Replies (1) \| Respond to of 39344

I am not sure I understand the desire to make more of this issue than it really is. All assets can be leveraged to buy additional assets. That is not creation of money. It may be misuse of money created by the government but it is not itself the creation of money. Not even "defacto" creation. Derivatives have become a scareword. The mortgage backed securities market provides both high risk and lower risk derivatives. It is not true that long term or high duration securities are in general purchased with short term funds. Institutional purchasers of mortgage derivatives do so with funds have similar to moderate duration differences. "The trade de jour is to borrow short term, and loan long term, and pocket the spread. Disintermediation of course occurs when short term borrowing costs rise, and the fixed long term assets (15-30 year mortgages for instance) can't be raised to offset it. " That is false, it is not the trade de jour. Banks and others making mortgage loans package them up and sell them. Then the buyers of the securities so created also use funds of similar duration for their purchase. Disintermediation occurs when short term depositors pull out funds and the institution can't raise funds to meet the outflow or will suffer a loss to do so.. This occurs. If the institution has invested all depositors overnight deposits in three year notes, and interest rates rise 200 b.p. for overnight deposits, indeed the institution will have a real problem as the value of its 3 year notes will have fallen considerably .