Summary
Despite its track record, pundits tout the benefits securitization. Here's more.
Analysis
Wall Street’s demise along with the collapse of much of America’s financial infrastructure ended nearly thirty years of prosperity, driven in no small part by consumer spending. Now, as some eager economists proffer the end of the recession and a return to normalcy, proponents of securitization offer another “taste of the hair of the dog”, which in no small part was indirectly responsible for the crash in retail spending.
Despite the scholarly analysis, bottom line, securitization is all about trader’s lifelong search for high yield, risk free investments. That was the offer big banks and investment houses made to their clients and with few exceptions they were universally wrong. Now, there are those touting the benefits of securitization again as if to say, we got it wrong last time, now we know how to make it work. Unfortunately for the unenlightened, it’s important to point out that Wall Street isn't NASA and the market can't be modeled according to numerical laws, except maybe one, Newton’s law of gravitation. That is, as apples inevitably fall from tree limbs so do stock prices when valuations exceed underlying fundamentals, in spite of securitization.
In days of old, kings employed alchemists to turn lead into gold. Investment bank CEO’s did the same thing a thousand years later for mortgages and the like, hiring MBA and masters of math, only to achieve similar results, except then the king's lead was probably worth more than the paper still sitting on the books of banks, insurance companies, pensions funds…etc.
Sadly, no branch of mathematics is sophisticated enough, even in the most artful hands, to adequately model one risk free, high yield security; much less thousands of them that form a chain of circular probabilities cascading one on top of another.
With billions of dollars already lost, and billions yet to be written off, Wall Street should stick to making lasts, as cobblers did in past, and leave medieval magic to Harry Potter's head wizard Alps Tumbledown.
