♠ Posted by Emmanuel in Casino Capitalism
at 12/26/2007 01:30:00 AM
Securitization involves the packaging of various assets to be sold to other investors in the form of, well, securities. Most infamously, residential mortgage backed securities or RMBS have been in the limelight as the subprime mess has hit primetime and housing loans which should never have been granted in the first place have begun defaulting in ever higher numbers. Actually, I am not a hardened critic of the idea of securitization as it can serve as a worthwhile way for securing additional funding. However, there isn't much you can do when what is being securitized is garbage to begin with like in the case of the housing mortgage mess. Garbage in, garbage out--there is no such thing as financial alchemy that allows trash to end up golden. King Midas is not a mortgage broker.I got a chuckle after visiting the American Securitization Forum website and seeing a notice that its 2008 annual conference will be held in Las Vegas for the second year in a row--at the Venetian, no less. If you're a hard boiled critic of the whole securitization mess, the choice of location is rich with irony. Las Vegas, the "ultimate boomtown," is now beset with the highest rates of foreclosure in the US as that market has cratered, to state things conservatively. Is securitization all smoke and mirrors, mere hocus-pocus, or both? And, is securitization a fancy word for gambling, oftentimes with the fortunes of others? You've got all the Star Wars droids being discussed at this event, that's for sure--CDOs, CLOs, RMBS, ABS, ABCPs, SIVs, etc. In particular, I am keen on the concept of "whole business securitization." While pretty much any asset which yields an income stream can be securitized, this kind of securitization involves what it says--securitizing an entire business operation. As the link above suggests, this kind of securitization is more worthwhile for firms that are rich in intellectual property--brands, patents, and trademarks. Given the current rate of financial innovation, maybe we'll see "whole country securitization" in a few years' time...
