To: Freedom Fighter who wrote (1336 ) 2/24/1999 11:31:00 AM From: Knighty Tin Respond to
Wayne, I don't know if I'll be any help here, but I'll jump in on some of this. Fannie and Freddie borrow short to lend long, a time honored way of kissing your assets goodbye. <g> One reason they do so is so banks can invest deposits in their short term paper and can lend on their long term collateral. But that is a small part of the credit creation. The story starts with somebody who sells a house or building or whatever and makes a deposit at a bank, the bank multiplies that through loans in the normal manner, some of this loan money finds its way into the mortgage market and the agency paper, long and short term, new mortgages are created with the seller making a new deposit in a bank, multiplying again. Etc. So, though Fannie and Freddie paper is indeed non-bank credit, when they create mortgages, they encourage property turnover which increases deposits which are multiplied through the credit system.
