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Secondary
Market:
Generically, any market that depends on the existence of the primary
market. The prices in the secondary market are partially dependent
on the prices in the primary market.
A catch-all term for any market whose existence depends on the products
created in the primary market, whether it be
cars, farm equipment, mortgages,
BANKER'S ACCEPTANCES,
TREASURIES,
CERTIFICATES OF DEPOSIT,
PROMISSORY
NOTES, etc.
This is just one example: a lending bank (primary market) holding
SEASONED
individual
mortgages on its own customers, i.e. mortgages on which the payments have a good record
for at least one year, can sell a
block of these qualified mortgages to a finance company, let's say ABC
Mortgage (secondary market), a large investor in mortgages.
ABC
pays the lending
bank the risk-adjusted fair value of those mortgages. ABC gets the full
rights to all remaining interest and principal payments. (In many
instances, the lending bank continues to collect the mortgage payments for
an administration fee, so you may not know that your loan has been sold,
but this in no way affects either the value of your loan or your
obligations).
Here is another example: the lending bank owns individually
qualified mortgages for a nanosecond and sells them by established
contract to ABC Mortgage. The lending bank profits by the points it
collected from the borrower, and by the administration fee it is paid by
ABC for collecting the monthly payments from the borrower.
In each case, the value of each individual mortgage is judged by the terms
of the loan, the quality of the lender, and various calculations based on
risk-adjusted fair value calculation standards for the current market.
The
Scam:
Swindlers involved in
HIGH-YIELD INVESTMENT PROGRAM scams often refer to the Secondary
Market as pension funds, brokerage houses, Trusts, and insurance companies that
purchase
FRESH
CUT SECURITIES created in bulk* once they have been
seasoned
for as short a period as
overnight.
The swindler tells a potential investor that enormous profits can be made by
purchasing these fresh cut securities and selling them the next day in the
Secondary Market.
The
con artist tells you that "seasoned" means that the Secondary
Market cannot purchase securities directly from the issuer. The con artist
must use your money to create the securities or purchase the securities,
known in ScamSpeak™ as a
FUNDS
FIRST deal.
Once this has been accomplished, the securities are considered a safe investment
by the Secondary Market.
*The scammer would have you believe that securities are created in bulk,
run off the printing press in batches, as it were - unattached to
individual specific transactions.
This
is complete hogwash and bears absolutely no resemblance to actual issuance and
trade of securities,
BANK
GUARANTEES, or
LETTERS
OF CREDIT.
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