Where have you gone, structured finance?

One of the more interesting question post-meltdown (do we even still call it that? we really need a name for the ‘financial events of 2007-2008’) is whether structured finance is, for all intents and purposes, dead. Structured finance is the general term that includes the securitization of debt. These vehicles go by names like Asset-backed securities, collateralized mortgage obligations, collateralized debt obligations. Of course, there’s a little bit-o-structured finance in almost all investments nowadays, but let’s keep our eyes on the ball here.

No mortgaged-backed securities here

The CMBS’s that have disappeared of late are securities backed by commercial loans (that market seems to have disappeared for now). It is interesting to note: a) that structured finance is not gone, and that b) it looks like something like $12B worth of securities have been issued using funds guaranteed by the federal government.

I could imagine, but don’t really know for certain, why a bank would prefer to securitize debt from the TALF funds. If it were my institution, I would pair the TALF assets with non-TALF monies (which are potentially much more dubious, given that delinquency rates on these kinds of loans are also climbing sharply), call it gold, or at least gold-plated, and then sell these to investors. I would make money on the transaction, get some of the loans off my books, and make that low-low-cost, low-low-risk Fed money work for me.

I know it’s too soon to start thinking about the ‘lessons’ we are learning from this crisis/event, because we’re still in it, but I am struck at this point by the way banks are trying so hard to return to business as usual. It may not happen, and we will almost certainly have some new oversight over the next year or three. But those expecting a ‘new’ Wall Street, or the ‘end’ of Wall Street, in my humble opinion, could not be more wrong.

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