1995-01-23 - Re: Why emoney? Why not a web of debt?

Header Data

From: Michael Froomkin <MFROOMKI@umiami.ir.miami.edu>
To: Rick Busdiecker <rfb@lehman.com>
Message Hash: 6ec64e8a5147b874c369b1fd411d1c912f9f0132ff739bc9dc99f1e33ece4a33
Message ID: <Pine.3.89.9501231119.A585123998-0100000@umiami.ir.miami.edu>
Reply To: <9501231337.AA14968@cfdevx1.lehman.com>
UTC Datetime: 1995-01-23 17:05:54 UTC
Raw Date: Mon, 23 Jan 95 09:05:54 PST

Raw message

From: Michael Froomkin <MFROOMKI@umiami.ir.miami.edu>
Date: Mon, 23 Jan 95 09:05:54 PST
To: Rick Busdiecker <rfb@lehman.com>
Subject: Re: Why emoney? Why not a web of debt?
In-Reply-To: <9501231337.AA14968@cfdevx1.lehman.com>
Message-ID: <Pine.3.89.9501231119.A585123998-0100000@umiami.ir.miami.edu>
MIME-Version: 1.0
Content-Type: text/plain


Sallie Mae's commercial paper is NOT backed by the full 
faith and credit of the US government.  They carry a specific disclaimer 
to that effect.  It is true that many personal student loans (GSLs) from 
banks are guaranteed by the government.  The system was recently reformed 
to remove the riskless subsidy to Sallie Mae, which is 100% privately 
owned, and very profitable.

Similarly Fannie Mae and all other priavetly held GSE's are only backed 
by an "implicit" federal guarantee.  Although the only time one of these 
got into trouble the feds did bail it out.

See my forthcoming article "Reinventing Government Corporations" in the 
Illinois Law Review.  Due out in about three months.

OBCrypto: How big a risk premium would YOU want to lend to an anonymous
borrower?  In practice, for the forseeable future any such lending will
almost certainly be intermediated through a very small number (near zero)
of specialists ready, willing and able to measure and minimize the risks. 
Or there will be ferocious requirements for collateral. 

A.Michael Froomkin          | +1 (305) 284-4285; +1 (305) 284-6506 (fax)
U.Miami Law School          | MFROOMKI@UMIAMI.IR.MIAMI.EDU
PO Box 248087               | 
Coral Gables, FL 33146 USA  | It's warmish here.

On Mon, 23 Jan 1995, Rick Busdiecker wrote:
[...]
> Student Loans (at least GSLs) and GNMA loans are backed by ``the full
> faith and credit'' of the US federal government.  As far as an
> investor is concerned, loan default looks the same as if the loanee
> paid their debt off early.  The `web of debt' suggestion posted here
> doesn't seem to follow the same model unless you count virtually every
> form of financial transaction -- including buying a cup of coffe with
> a dollar bill -- as fitting the model.
> 
> As a side note, GNMA (Ginnie Mae) is not for `general loans', but
> rather VA and FHA primary residence mortgages with various
> restrictions.  GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) all
> exist to provide secondary markets for various kinds of real estate
> debt.
[...]





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