NY Times: Securitization Market Completely Dependent On Govt Programs

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The securitization markets are dead.

Robert Shiller, Economist, Yale University


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Fascinating and important article on the front page of today’s New York Times Business section showing that the securitization markets are completely dependent on government programs.

There have been no commercial mortgage backed securitizations in the last two years – because there is no federal program supporting this type of securities.

Residential mortgage securitization, not backed by Fannie, Freddie or Ginnie Mae, has collapsed from $744 billion in 2005 to $8 billion during the first half of 2009.  Again, there is no federal program supporting this type of securities.

Asset backed securitization is showing some life, but that’s all due to the TALF: “The market is coming back, but a lot of it is because of TALF”, says Hyun Song Shin, a Princeton Economist who studies securitization.

The securitization market for Fannie, Freddie and Ginnie Mae MBS is booming.  It is actually running far ahead of the pace set in 2005-2008.  But that’s due to massive Federal Reserve purchases of these securities.  Now that the Fed is tapering off this program through the end of the 1st quarter of 2010, what happens to this market without Fed support?

There is no private market for securitized mortgages and loans.  The only market right now is the government.  What happens if the government tries to exit these markets?  Do they collapse?

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