The purpose of the TBA market in real estate finance is to allow the information from the underlying security "to-be-assigned" at settlement for the transaction. It is prohibitively difficult for small banks and institutions to participate in this market without perfect information - the only way to allow for the market to be purely competitive is for the standard uniform pricing index to exist, such that transactions between large and small banks to occur. Otherwise, the availability and absence of free information has momentous effects in the long-run. Cherry-picking and cream-skimming are models for institutions to profit from and manipulate the market system in the presence of asymmetric information.
The effect of this market system and the way transactions occur has implications for a variety of public policy related areas - consumers and mortgage finance reform in particular, along with the role of large banking institutions; small banks; the Federal Housing Finance Agency (FHFA); the Consumer Financial Protection Bureau (CFPB); the Fed (FRB); the Treasury;
Technology has increased the rate of change of transactions at an exponential rate, therefore the velocity of money in the market is an important factor in potential GDP. Regulatory capital requirements withhold money from the banking system - more capital is needed to shield against the effects of downturns, requiring the additional QE to overcome the shortfall in cash flows - once bank recoup capital on the balance sheet, only then can they facilitate lending and the money multiplier (demand). The potential demand is maximized in the market with leverage, albeit too much leverage has the recent potential to bring down the system. The stimulus was required to save thousands (or millions) of jobs because under this scenario the line insolvency and liquidity becomes blurred.
The use of the financing of home loans and housing related interventions as a valid form of economic is controversial to say the least. From the left - a free market requires perfect information for competition to legitimate and government regulation can facilitate this process. On the right - markets are never perfect and government intervention accomplishes little in achieving this goal. Housing finance reform ought to address the gray area in the TBA market - how can transactions occur, such that large institutions do not hold significant informational advantages over small banks?
The effect of this market system and the way transactions occur has implications for a variety of public policy related areas - consumers and mortgage finance reform in particular, along with the role of large banking institutions; small banks; the Federal Housing Finance Agency (FHFA); the Consumer Financial Protection Bureau (CFPB); the Fed (FRB); the Treasury;
Technology has increased the rate of change of transactions at an exponential rate, therefore the velocity of money in the market is an important factor in potential GDP. Regulatory capital requirements withhold money from the banking system - more capital is needed to shield against the effects of downturns, requiring the additional QE to overcome the shortfall in cash flows - once bank recoup capital on the balance sheet, only then can they facilitate lending and the money multiplier (demand). The potential demand is maximized in the market with leverage, albeit too much leverage has the recent potential to bring down the system. The stimulus was required to save thousands (or millions) of jobs because under this scenario the line insolvency and liquidity becomes blurred.
The use of the financing of home loans and housing related interventions as a valid form of economic is controversial to say the least. From the left - a free market requires perfect information for competition to legitimate and government regulation can facilitate this process. On the right - markets are never perfect and government intervention accomplishes little in achieving this goal. Housing finance reform ought to address the gray area in the TBA market - how can transactions occur, such that large institutions do not hold significant informational advantages over small banks?
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