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To: Elroy Jetson who wrote (100737)	8/12/2009 2:42:50 PM
From: maxncompany	Read Replies (3) \| Respond to of 116555

Isn't the $500K initially paid still out there? It went to the homebuilder or previous owner, and that money is already out there. More of a question I'm posing, just wondering.

To: Elroy Jetson who wrote (100737)	8/12/2009 2:47:13 PM
From: Claude Cormier	Read Replies (2) \| Respond to of 116555

When the original owner borrows to buy his house, money is created and goes in the system. In your example, $500K or so minus cash down. Then he defaults. The bank balance sheet is modified: a house is added valued at $200-$300K, a receivable is cancelled, but the US money supply is intact as the initial $500K is still out of the bank in the system. Since the banks reserves have been kept clean by the Fed, who cares about the lost of value in this asset. The bank can resell it and create a new loan and add again to the money supply. But the fact is a foreclsoure doesn't change the money supply and is not deflationary. It affects only the bank balance sheet which can be repaired at will by the FED. What is wrong with this logic?

To: Elroy Jetson who wrote (100737)	8/13/2009 2:08:40 AM
From: mishedlo	1 Recommendation Read Replies (1) \| Respond to of 116555

Likewise when the Fed "buys" impaired assets from banks with a repurchase agreement. The damage to the bank's balance sheet appears to be repaired, but the bank doesn't lend because they know they still own the damaged assets and their situation is still precarious. All is not what it seems. Bingo! The whole swap-o-rama is a big game of pretend, not an infusion of $14 billion of actual cash or whatever numbers people are claiming. Mish