ASF Tries to Make a Stand

On May 18th, the US Senate Banking Committee held a hearing on the State of the Securitization Markets.  Headlining a mixed group of industry professionals was Tom Deutsch, Executive Director of the American Securitization Forum.

The ASF’s written testimony provided the Committee with a very comprehensive analysis of how all the recent legislation and new regulations have negatively impacted the securitization markets.  The cumulative impact of all this “surgery” has effectively ground the securitization markets to a halt, with only a few asset classes such as auto and credit card securitizations, performing at anywhere near pre-crisis levels.  Most estimates have the US securitization industry operating at just 20% of what it was back in 2006 and early 2007.

We think that Mr. Deutsch got it just about right when he suggested in his testimony that the only real way out of the legislative and subsequently proposed regulation quagmire was for the regulators to closely review the comments and formal communications from the industry, including both  issuers and investors, and for them to agree that they will recast the originally proposed regulations in a revised form which is much more conducive to the revival of the securitization markets.

Essentially, what the ASF is trying to say (without actually saying it)  is that the cumulative effects of all the piecemeal legislation and regulation, often written and passed by folks with little or no real experience or understanding, must be redone or you can kiss securitization as a financing tool goodbye. 

We could not agree more completely with the ASF on this point.  We just wish they had been as succinct and as forceful about this message a long time ago.  Hopefully, this case of “better late than never” is not too late because, if it is, the next hard lesson to be learned by the regulators on the backs of the US economy might be that there is not enough balance sheet capacity in all the banks to support a full recovery of the US economy.  We worry that it may be too late before they figure out that the answer to spurring the recovery of the US financial services industry had been securitization all along. 

As we have said in the past, too much leverage may be bad but zero leverage is a recipe for disaster.  Securitization provides banks and other lending institutions with a most efficiently consistent method for managing the leveraging of their balance sheet and it provides non-financial investors with an efficent way to invest in financial instruments without having to underwrite those activities themselves. 

We hope that enough people in the right place come to understand this or, better yet, they remember this before the new regulations are finalized.

About markferraris
Managing Principal Orchard Street Partners LLC

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