Despite Trillions Of Dollars Of Interventions, The Debt Market Remains Paralyzed

It’s impossible to get a loan from a bank these days unless you have a credit score north of 700 and a lot of documentable income.

Until people are ready to buy bonds backed by real estate, by homes and commercial real estate, until people have some confidence in real estate values, there’s going to be no bond market backed by real estate and therefore very little new lending and therefore no prospects for economic growth.

Currently, we’re screwed. And there’s no hope in sight.

The debt securitization market provided about 60% of lending money over the past few years. It has seized up.

Now the Federal Reserve has announced it plans to withdraw its massive interventions. It hopes the private sector will step up.

There’s not going to be economic growth until the security markets return to normal.

The commercial real estate securities market? It is dead. No such securities have been offered in two years.

New regulations and accounting rules are expected to further restrict bank lending in the next couple of years.

Few people want to buy bonds backed by home mortgages. Other parts of the security market are working. Bonds backed by consumer loans, auto loans, credit card loans, are selling normally, though only for those with credit scores over 700.

Commercial real estate is expected to be the next shoe to drop in our housing disaster. Next year $50 billion of securitized commercial property loans are supposed to be refinanced. If they can’t be refinanced, property prices will plunge. Banks will have to absorb new losses.

Banks aren’t extending loans for commercial real estate because they can’t package them into bonds and sell them.

The NYT says: The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money.

Many investors have lost trust in securitization after losing huge sums on packages of subprime mortgages that had high default rates. The government has since spent more than $1 trillion trying to restore the markets, with mixed success.

Until more of the securitization market revives, or some new form of financing takes its place, a wide range of loans needed to secure a lasting economic recovery will remain elusive, experts said.

…A once-thriving private market in securities backed by home mortgages has collapsed, from $744 billion in 2005, at the peak of the housing boom, to $8 billion during the first half of this year.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
This entry was posted in federal reserve and tagged , , , , , , , , . Bookmark the permalink.