The Boom in Packaged Debt
Bundling loans and mortgages to create salable securities has revolutionized finance. But portions of the market may be in serious trouble.
THE GOOD NEWS
-- Illiquid assets can be made salable
-- Virtually any payment flow can be securitized
-- Securities can be designed to provide any risk level
-- The most distasteful asset can achieve AAA rating
THE BAD NEWS
-- Issuers of auto and home-equity loans have recently collapsed
-- Securitization can promote excess credit creation, leading to busts
-- Assumptions of consumer behavior may go awry, damaging expected cash flows
-- Liquidity may be illusory during sharp contractions
DATA: BUSINESS WEEK
RELATED ITEMS
 - A $2.5 TRILLION MARKET YOU HARDLY KNOW
- TABLE: The Boom in Packaged Debt
- BAD LOANS MADE GOOD
- TABLE: Anatomy of a Deal
- CHART: Asset-Backed Deals Are Booming...And So Are Mortgage-Backs...
- CHART: ...But Spreads Are Rising...And Downgrades Are Climbing
- AN EXIT PLAN FOR JAPAN?
- ASSET-BACKED GAMBLING?
- THE SKEPTIC: `THERE WERE SCREAMING MATCHES'
- COMMENTARY: SECURITIZATION IS NO SECURITY BLANKET
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