The principal flows in asset-backed securities in Q2 2004 were to finance real estate ($255.7 billion, net, in home mortgages and $64.6 billion, net, in commercial mortgages).

The principal source of this funding was the issuance of corporate bonds, mainly to foreign investors and life insurance pension funds. In other words, the trade deficit and long-term pension savings were the principal sources of this type of financing for the U.S. real estate market.

There has been a net reduction in the financing of consumer credit with asset-backed securities since Q3 2003. Trade credit which was a principal application of this type of financing until 2002, was running below pre-recession levels. (This is consistent with the reduction in business loans in the commercial banking sector.)

For a useful discussion of asset-backed securities, see the SEC’s proposed rule.

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