A fundamental insight about finance: Suppose the bank has $250k and you want to buy a house costing that. The bank, by convincing you to take out a mortgage, ends the day *materially* better off than it started, because your promise to repay is worth *a lot* more than $250k.
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This doesn’t *feel* like something that didn’t exist previously now exists, but manufacturing happened regardless. The genius of securitization, and it is genius, is that it is inefficient for a manufacturer of mortgages to own all the mortgages. Toyota doesn’t own all cars.
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“Why inefficient?” Well there are people whose future needs for cash flows are shaped in such a way that they’re happier to tie up more money now in return for predictably receiving a modest rate of interest than the bank is. (Pension funds, insurance companies, etc)
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Replying to @patio11
Have you read Sowell’s “Knowledge and Decisions”? You would love it, he lays these things out in such a straightforward way
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