Debt-Securitization Markets Remain “Paralyzed”

“Given the imperative for securitization markets to fuel bank lending, we won’t have meaningful economic growth until securitization markets are re-established.”

–Joseph R. Mason, a professor of banking at Louisiana State University.


It may be hard to get a loan — but don’t blame banks, says the NYT. Frozen debt-securitization markets are to blame:

“The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up . . .

The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money.

Many investors have lost trust in securitization after losing huge sums on packages of subprime mortgages that had high default rates. The government has since spent more than $1 trillion trying to restore the markets, with mixed success . . .”

That’s a rather intriguing analysis. I wonder how prepared we are for when these markets start up a gain:

“Meanwhile, the programs the government has started have not changed securitization practices that many investors say were a cause of the financial crisis. Lawmakers remain concerned that when securitization comes back, it does so in a way that doesn’t put the financial system at risk.”

Worth the read . .  .


Paralysis in the Debt Markets Is Deepening the Credit Drought
NYT, October 6, 2009

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