The New York Times reported today that even though the government funneled billions of dollars into major financial institutions after the financial crisis began last year, credit is still tight because the debt securitization markets aren’t functioning.
The article by Jenny Anderson explained that the securitization of corporate loans, home mortgages, commercial real estate, student loans, and others made up roughly 60 percent of the credit in the United States before the crisis, and that private investors abandoned them after the collapse of subprime mortgage market. For example, securities backed by home loans fell from $744 billion in 2005 to $8 billion in the first six months of 2009.
Experts quoted in the article said the securitization markets are critical to increasing bank lending and economic growth. Of particular concern are the “$50 billion of securitized commercial property loans due to be refinanced in the next year. If this can’t be done, a toxic mix of declining property prices and maturing loans could lead to fresh losses at many banks” Anderson wrote. The government has used the Term Asset-Backed Securities Loan Facility (TALF) to encourage investment in these markets.
Access the article here http://www.nytimes.com/2009/10/07/business/economy/07shadow.html?emc=eta1