secondary mortgage market

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pjethwani's picture
Status: Member (Offline)
Joined: Jun 20 2009
Posts: 1
secondary mortgage market


I have a macro-economics/finance question


when a bank dolls out loans (without adequate underwriting) - then they are creating new money in the economy - right?

now, when these mortgages are purchased in the secondary mortgage market by other financial entities e.g. pension funds, hedge funds etc. - arn't they using existing money - which could be from US or foreign lenders - to buy these securities?


now, if these CDOs go sour - isn't real money/credit destroyed from the economy - because the last entity to own these CDOs - was playing with people's savings and pensions etc.?


Is my thinking correct? if so - then what are the ramifications of this?

please advise

Jarhett's picture
Status: Silver Member (Offline)
Joined: Nov 21 2008
Posts: 132
Re: secondary mortgage market

Basically you are seeing this unfold before your eyes.  Massive Wealth Destruction, if nothing is done.  Luckily our government is trying to stop this massive wealth destruction by printing trillions of dollars to cover this.

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