The details are out on the government’s trillion-dollar program to spark lending by financing the sale of securitizations. Originally, we were just going to do securities backed by loans to consumers and small businesses, but now we’re also looking to give a boost to loans for heavy industrial equipment, rental-car fleets and agricultural-equipment leases. The graph on the cover of this morning’s WSJ illustrates how much the “credit crunch” has cut off these markets:
Kind of grisly. But if you look at issuance broken down by asset type, certain parts of the market look much worse than others. A couple of months ago, I wrote a story for the Global Business section of our magazine about the future of securitization. My colleague Lon Tweeten put together some graphics showing how much issuance has declined in various parts of the market:
The data is now a little old, but you can still see some important distinctions. Auto-loan securitizations have fallen off a cliff, as have privately issued mortgage-back securities. Securitizations for credit cards and student loans, though, are simply back to their pre-bubble levels. Is that so bad? I’m not so sure it is. You can read my full thoughts on the topic here. This is just a taste:
We’re all familiar with how subprime mortgage loans were made to people who couldn’t afford them, but there were other places where borrowing turned imprudent. New securitization of private student loans, for example, has taken a massive hit. At first blush, that seems like a problem we need to resolve immediately — what could be wrong with encouraging higher education? But Mark Kantrowitz, a financial-aid expert who has fielded calls from students who borrowed north of $100,000 for associate’s degrees, thinks there might be a silver lining. “There’s growing concern that more and more students are overborrowing,” he says. “A good rule of thumb is if you borrow more than your expected starting salary, it’s going to be hard to repay your debt, and if you borrow more than twice, you’re at a very high risk of default.” Easy money sets up all sorts of people for failure.