Friday, 7 January 2011

Whatever happened to the securitizations market ?

The securitizations market came to the limelight at the onset of the financial crisis as the trigger that caused ripples to the global financial system. People were bombarded with exotic acronyms such as CDOs (Collateralized Debt Obligations), CLOs (Collateralized Loan Obligations), RMBS (Residential Mortgage Backed Securities), CMBS (Commercial Mortgage Backed Securities), etc. This issue is extremely complicated to explain here as my intention was to write a short post. But even if that was not my intention I lack the expertise to claim that I understand the going-ons in that market.

What I wanted to point out though was the state of the securitizations market now after all that happened. Well, according to data by the St. Louis Fed there isn’t much of a market left (my interpretation), at least for securitized consumer credit. RMBS are a different story and I don’t have any data worthwhile to comment.

source: St. Louis Fed

Notice that after 31/3/2010 the volume of securitized consumer credit fell off a cliff. Of course that date is hardly coincidental, it is the day that the TALF (Term Asset Loan Facility) stopped accepting such ABS (asset backed securities) as eligible collateral to provide loans. The TALF as a whole was terminated on the 30th of June 2010. 

If the sector was in a bubble (which I believe it was) the pattern in the graph seems to be one common in assets in bubble conditions. Notice that during 2004-2005 there was a drop in volumes but then the market went on in a last binge that ended when the crisis began. The 2006-2007 surge in volumes is usually the last stage before the bubble bursts.

My overly simplistic take is that right now there is no other notable buyer of securitized consumer credit out there except the US government. Of course that could very easily be wrong and I am more than glad to accept corrections...

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