It may sound like a term dripping with intrigue and danger, maybe referring to a project that guarantees the security of highly trained special agents as they work deep under cover in some volatile overseas terrorist cell.
But, nah...it's really about bonds.
An "agency security" is a security, like a bond or a note, issued by one of the so-called government-sponsored enterprises, or GSEs. These companies were created by Congress to help foster home ownership. But while they were government-created, they don't fall directly under government control.
There aren't many of these firms, just three in fact: the Government National Mortgage Association, also known as Ginnie Mae; the Federal Home Loan Mortgage Corporation, or Freddie Mac as it's known on the street; and the Federal National Mortgage Association, which goes by the nom de guerre Fannie Mae.
The government has made no explicit promise to back the bonds issued by these organizations. But because of their history as government creations, Wall Street assumes the government would step in if needed. (This took place in some degree during 2009 and 2010, in the aftermath of the financial crisis. See: Agency MBS Purchase.)
This not-actually-but-sort-of-anyway government backing allows the agency securities to have an extremely high credit rating.
Related or Semi-related Video
Finance: What is an Agency Relationship?202 Views
Finance a la Shmoop! What is an agency relationship? Alright well this
one could have come straight out of Hollywood.
Because in finance land, no relation to Disneyland, the same kind of client agent
thing exists. I'll deal with a lot less than ten
percent per transaction commissions. That's usually standard in the old
Hollywood. Well you are granny gold digger, you're 97 year old husband, just[people at funeral]
died. Leaving you at 43 a wealthy woman. You meet with your stockbroker, now
turned private wealth manager, handsomey mic handsome and assess the
relationship here. Well handsomey, has a fiduciary
obligation to you, to act on your best behalf. He is effectively an extension of
you. He is your agent, in the same way your right hand is your agent when your
back itches. He must be open about his fee structure.
Like a common agency arrangement these days, has the client paying 1% of the[pile of money in mansion]
assets under management with the agent. Whether the agent does a ton of work for
the client like tons of trading, or whether he does a whole lot of nothing.
Well the dicey conversations here then revolve around whether that agent
encouraged his client, to put money in the very high, free hedge and private
equity funds run by the agents firm. And then, well you know, you could ask does
the agent then get a spife, or tip, or free trip for him and his family to[man on vacation]
Hawaii at the end of the year? Hmm does that happen? Could that happen?
Agency relationship. All right well the basic idea here is that an agent must
act in the best interests of the client no matter what. Even if the advice the
agent is giving the client is directly opposite, the best personal interests of
that agent. Like getting a lot of commission and that free trip to Hawaii.
And yeah that is the only relationship we want to have with an agent.[three people in office]
Sorry there.
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