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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Mike M2 who wrote (41545)	12/31/1998 9:52:00 AM
From: Jess Beltz	Read Replies (1) \| Respond to of 132070

William, the growth of asset backed securities does increase the number of debt claims in the financial system, and to that extent does represent an increase in the amount of leverage being used, but does not really increase the total risk of the system. The reason is that asset backed securities are primarily one set of debt claims resting on the back of another set of debt claims. The security represented by the contractual nature of debt is not fragmented on a foundation of very risky equity payoffs. Thus the system of mortgage or other asset-backed securities is a spreading out of the risk and reward opportunities that used to reside almost exclusively with banks and S&Ls to a wider audience of capital market participants, with the banks gaining some stability of income by replacing income that used to be based almost exclusively on the spread between long maturity and short maturity yields with fee income derived by servicing the debt contracts which are being sold. I really do not see much risk in this market. jess