Even the likes of Magnum, P.I. would find it impossible to trace the money that flows between the federal government, the banks and the financial institutions that generate capital. Over the past two years, the gray shades of overlap between these entities have lead them to be inseparable.

The most obvious example has been the shift of the classic generator of capital from the giants of Wall Street to the inner workings of Washington; a shift more about places than faces.

As our government repairs the economic ship, leak by leak in order to keep it afloat, it is no easy task to connect the success or failure of an individual part of the puzzle and the effect it has on the whole.

For example, in just this past week, two seemingly unrelated stories have emerged that are very much related. The first was that bank purchases of Ginnie Mae (Government National Mortgage Association) securities have increased over the past year to the largest amount since 1994 — from            $41 billion to $113 billion.

This is beyond significant as it is Ginnie Mae that creates a secondary market for home loans by guaranteeing against payment default on loans backed by the Federal Housing Administration.

A second report within the same week said that the FHA has been hit with increasing mortgage losses and is in danger of falling below its 2 percent reserve of loans insured (3 percent last year and 6.4 percent in 2007.

A factor of disconnect and concern arises when the source of funds backing FHA loans triples and the FHA itself may soon require some form of taxpayer bailout. Edward Pinto, the former chief credit officer at Fannie Mae, offered perspective in stating “they’re probably going to need a bailout at some point because they are making loans in a riskier environment.”

As the FHA resolves its woes in one corner, the question appears why would the banks finally invest in Ginnie Mae bonds? Altruism? Nationalism? Clearly, neither.

The answer lies in the fact that Ginnie Mae securities are secured by the United States Government. Therefore, banks are not required to retain any reserves when moving out of reserve requirement investments and into Ginnie Mae bonds.

To add a further level of complexity to this flow of money, some banks taking this route have used taxpayer funded TARP (Troubled Asset Relief Program) money to make this portfolio purchase of government (taxpayer) guaranteed Ginnie Mae bonds.

The apparent reality is one that has followed the financial recovery program since its inception. The “trickle down” of government funds through banks and lenders was intended to provide home loans and credit to stimulate home purchases and the economy, but there was one stop along the way.

The banks found themselves confronted with money in hand and a business decision to make. Do we clean up our own company’s bad assets with this taxpayer money or do we extend it to the public borrower as intended? Clearly, the banks have chosen to clean their own house first.

As the FHA hardships and Ginnie Mae successes converge, we will see what happens when you follow the money. Eventually, the paths cross.

Charles Bogue is a real estate broker in Napa. He can be reached at 486-5511 or e-mail: cbnapa@napanet.net.