On Fri, 24 Apr 2009, Doug Henwood wrote:
>> So does this mean you're re-thinking your idea that securitization
>> should be euthanized?
>
> No. It's a silver lining. But it's still basically bad.
Apropos, Gillian Tett has an interesting column in today's FT. (BTW, it's in the second section, her normal weekly column -- she's got a 2nd column in the first section today about something else).
She has data that says that banks are actually lending fine. The only real collapse has been in securitization, which has gone from $1.8T in 2006 to $200B last year to de minimis this year -- and that minimal amount bought almost entirely by central banks. (BTW, these figures are excluding agency securities.)
http://www.ft.com/cms/s/0/36b8e90c-3033-11de-88e3-00144feabdc0.html
April 23 2009 Financial Times
Finger of blame points to shadow banking's implosion By Gillian Tett
These days, banker-bashing is a popular sport for politicians of all stripes. For not only are the banks being blamed for unleashing financial disaster -- while paying the bankers fat bonuses -- they are also being blamed for slashing loans in a way that is now triggering a recession.
But is that perception really right? If you take a look at some recent research produced by Citigroup, it might seem not. For if Citi data are correct, the real source of the current credit crunch is not a collapse in bank loans, but the implosion of the shadow banking world.
And that in turn provokes a wider question: namely whether there is anything that policymakers could, or should, be doing now to revive the activities that were once performed by those peculiar shadow banks.
The numbers highlight the scale of the challenge. According to Citi (which has crunched its own figures and those of Dealogic), almost $1,500bn worth of new corporate loans were issued across the global financial system in 2008. That was well down from 2007, when more than $2,000bn of loans were made.
But the loan total last year was similar to that seen in 2006, and twice the scale of activity in 2004. Moreover, when non-financial loans are measured, an even more notable pattern crops up: at the end of last year, the volume of non-financial corporate loans was still growing at an annual rate of 10 per cent in both the US and Europe. That was well below the 20 per cent expansion seen in Europe before the peak of the boom, and in some sectors new bank-lending has tumbled. But those figures do not point to a credit drought. After all, from 2002-2004, loans to non-financial companies in the US shrank at an annual rate of more than 5 per cent.
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.
Indeed, the only group really acquiring repackaged debt now are western central banks, which have taken huge volumes of securities on to their own books (and away from the market), as part of their liquidity-injection measures.
So far this pattern has prompted relatively little wider political debate. After all, before the summer of 2007, most non-bankers had no idea that a shadow banking world even existed.
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.
<end excerpt>
Michael