Gillian Tett has an excellent column in today's FT on the implosion of the securitization markets:
What is imploding though is the securitisation world. If you exclude agency-backed bonds, in 2006 banks issued about $1,800bn of securities backed by mortgages, credit cards and other debts. Last year, though, a mere $200bn of bonds were sold in markets, and this year market issuance is minimal. ... But the longer that this drought continues, the bigger the policy issues become. After all, no politician wants to see the government buying mortgage-backed bonds forever; but nobody really believes that traditional, old-fashioned lending can take up all the slack. So either the system needs to find a way to restart securitisation or we face a world where credit will remain a highly rationed commodity for a long time to come.Before the crisis, over a quarter of all consumer credit (non-mortgage) was funded through the securitization markets. While securitization's share of total lending will undoubtedly shrink in the medium- to long-term, it's just not possible to completely—or even substantially—replace such a large source of lending in a matter of months (and during an epic financial crisis to boot). So securitization it is. As Tett puts it in a great line at the end of her column:
The longer that politicians wail about the supposed “failure of banks to lend”, while ignoring the bigger source of the credit crunch, the harder it will be to wean the system away from government support.I couldn't agree more. If you want banks to start lending again on a scale sufficient to fuel an economic recovery, then restarting the securitization markets should be one of your top priorities. You shouldn't be demonizing the entire concept of securitization, and you certainly shouldn't be calling for banks to increase lending while simultaneously criticizing the Obama administration for attempting to restart the securitization markets.