[PEN-L:30691] Re: [banks

[Charles Jannuzi <b_rieux@xxxxxxxxx>]

--- michael perelman <michael@xxxxxxxxxxxxxxxxx>
wrote:
> Wessel, David. 2002. "U.S. Appetite for
> Refinancing Contributes to Bond
> Volatility." (26 September).
>  Fannie, Freddie, banks, Wall Street houses and
> others who borrow money
> from one place and use it to buy big pools of
> mortgages.  Their profits
> come from borrowing money at, say, 6.5% and
> lending it to homeowners at
> 7.5%.  When a homeowner pays off a 7.5% loan
> and takes out a 6% mortgage
> instead, that profit can turn to a loss.  Big
> players are still stuck
> with paying out 6.5%, but can't find a safe way
> to earn that much on
> their cash.
>  The big players may not buy Treasury debt
> directly, but they make side
> bets on financial markets, called
> "derivatives," from dealers who buy
> Treasuries to cover the risk.

This WSJ (I believe that is where I first read
it)piece begs the question of what is wrong in
the first place. Is the problem refinancing to
reduce debt, or derivatives?

C Jannuzi




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