The following article is an excerpt from a presentation given by Michael C. Jensen, CFA, at the CFA Institute’s 2014 Banking & Finance conference. I highly recommend it to anyone interested in the financial aspects of money, banking, investing, and wealth management. You can purchase a copy of the full presentation here: Michael C.
Although Michael brings in many valuable points, the most important thing to understand is that the financial products and services that we use in our daily lives are not only connected, but also interrelated — if you understand one you can understand the other.
A lot of the financial products and services we use are not only related. For example, the credit card companies are all part of the “big three” (American Express, Visa and Mastercard). They all have different rules for what credit cards are and how they are used. Some of the credit card companies are also regulated by the Fed and the FDIC, so the fact that they all have similar rules helps prevent fraud.
Credit card companies are all tied together with one another in so many ways.
Credit cards are in some ways similar to the mortgage market. The credit card companies have their own set of rules and regulations. This is because the credit card companies are regulated by the FDIC and the Fed. Because of this, the credit card companies have to follow the same rules as the mortgage companies. This is how the two sets of rules got separated.
Fiat wealth management is a term, sometimes used as a pejorative, that refers to a practice of using money to make money. Fiat wealth management is how the credit card companies buy the securities that are used as collateral to secure loans, and then sell those securities to investors. Because fiat wealth management is regulated by the FDIC and the Fed, the credit card companies have to follow the same rules as the mortgage companies.
Fiat wealth management is the practice of borrowing money to buy securities, then selling them at a profit. The credit card companies (and many others) are regulated by the FDIC and the Fed so they are considered moneylenders. They can borrow against assets that are already in existence. So when the credit card companies buy the mortgages or the bank’s credit cards, they are actually buying the debt (i.e.
the debt they’re trying to sell.
The problem is that the actual purchase happens on the secondary market, not the secondary market of the securities. It’s just a scam. So now, instead of buying the mortgage for X amount of money (which would be the same as if you were buying a mortgage for X amount of money) the bank has an opportunity to sell them to a third party buyer for X amount of money.
The problem is that the borrower may want to sell a mortgage for X as many borrowers as possible, but the lender of the loan is not interested in buying the mortgage debt. Its the lender of the loan who makes a sale for the mortgage debt. Its the borrower who is interested in buying the mortgage debt and wants to sell it. That is the question.