Most of M 3 is not really related to the stock market but to financial institutions intermediation in the form of derivatives and the continuous, nonstop creation of other credit instruments such as CDO's., Mortgage Backs, CDS's,Repos of different kinds and the securitization of just about anything, etc, all of which are alien to the concept of margin requirements. All of these
I have always wondered who has the ultimate exposure to the exotic new mortgages (ARMs etc) that have got so much attention recently? The way I understand the house-financing process: home builder builds new home, bank lends money to an individual who pays the HB and makes monthly payments to the bank. The bank either securitizes most of these mortage assets or sells them to Fannie Mae which in turn securitizes them as MBSes. Who then are the big buyers of these securities? Pension funds? Do MBSes meet the investment criteria for mutual fund and pension funds to buy them? Only the upper tranches? To what extent does Fannie Mae guarantee the MBS? Are hedge funds big holders of MBSes? Foreign central banks? If there is a massive housing bubble burst, with large numbers of foreclosures, who gets hurt the most (obviously all of the above players get hurt to some extent). Or is the exposure widely diversified? thanks. --raghu.
