Please be open to feedback and constructive criticism from others, and consider their suggestions and advice when making decisions or forming opinions.
- Manlobbi
Personal Finance Topics / Macroeconomic Trends and Risks❤
No. of Recommendations: 7
David L. Bahnsen, Chief Investment Officer and Managing Partner of The Bahnsen Group, posts a weekly analysis called "Dividend Cafe." Mr. Bahnsen is intelligent and has a unique take on the marketplace so I enjoy reading this.
https://thebahnsengroup.com/dividend-cafe/The latest Dividend Cafe makes a rather unique claim.
https://thebahnsengroup.com/dividend-cafe/exceptio...
Exceptional Markets Require an Exceptional Economic Framework – September 5, 2025
...
(Capital) Market Forces
One extraordinary thing the United States has done is foster robust capital markets to promote economic growth. While many have decried “financialization” as somehow impeding economic progress, the United States has long used innovations in financial markets to facilitate risk-taking and the deployment of capital to all sorts of economic endeavors, and we have reaped the rewards.
Securitization accounts for approximately 50% of U.S. GDP, compared to about 7% in Europe. We have a $30 trillion GDP and $15 trillion in securitization issuance. The financial instrumentation I refer to is often demonized as “tools for Wall Street dealmaking,” when, in reality, they are tools of lowering borrowing costs, creating investor liquidity, distributing risk efficiently, and expanding opportunities for capital to be deployed across a variety of markets far more expansively (from automobiles to consumer goods to commercial real estate to aviation to anything else creative minds can figure out a way to efficiently securitize). European resistance to securitization is not the opposite of “financialization” – it is resistance to growth and the unlocking of value creation.... [end quote]
I wasn't sure what "securitization" means so I looked it up with Google Gemini.
Securitization is the same as derivatives.
For example, in the old days banks used to issue mortgages and hold them on the books. The banks carefully vetted every mortgage since a default would hit the bank directly. With securitization the bank can bundle many mortgages into a derivative which investors can buy fractions of. The income from the mortgage payments are then divided up among the owners of the fractions of the derivative. This gives all kinds of investors the opportunity to access cash flows. Meanwhile the bank takes the money from the issuing the derivative and creates more mortgages which then are re-packaged into more derivatives. The bank manages the cash flow from the derivative but is no longer at risk from defaults. Even Fed Chair Alan Greenspan said that derivatives help to spread risk.
What could possibly go wrong?????
Are derivatives the "secret sauce" for the growing U.S. economy? Or is the immense scope of securitization setting us up for another 2008-style financial crisis when the spread risk pulled down investors all over the world?
Wendy
No. of Recommendations: 0
sauce not spicy enough.
MAGA grifters must add crypto !
No. of Recommendations: 0
What could possibly go wrong?????
paired with
Who me worry?
The economic growth is not real GDP growth in such proclamations.
No. of Recommendations: 3
Are derivatives the "secret sauce" for the growing U.S. economy? Or is the immense scope of securitization setting us up for another 2008-style financial crisis when the spread risk pulled down investors all over the world?
*****historical context. do not flame me again******
Derivatives, aka "gambling". We were having this conversation in 2007. At that time, the default sweep account at the brokerage where I had my IRA was the Reserve Primary Fund. The fund's annual report floated into my mailbox around June or July of that year. The vast majority of their "assets" were derivatives. I changed my sweep account to one that put the money into FDIC insured CDs. A year later, Reserve's derivatives blew up, the fund broke the buck, and collapsed.
Of course they count "securitization" in GDP. How else could they proclaim the "supply side economic miracle"? Securitization doesn't require any factories, or employees, or useful products, as it builds a paper pyramid.
Recall the comment you made a few days ago, about B-school textbooks, in the 80s, shifting to preaching "maximizing shareholder value". Also most easily done with financial speculation, rather than productive endeavor.
Steve
No. of Recommendations: 1
The problem comes when there is no obvious way to evaluate the proper price of an investment commodity. This is not limited to derivatives, but even takes place with simple equities. Look at the attrition (death) rate of high-tech companies which were high-flyers during the dotcom boom. Sure, Apple, eBay and Amazon have flourished, but for each issue which succeeded, how many rah-rah stocks bit thee dust?
Today, there are dozens of AI stocks which have garnered prominence without making a dime. I'm guessing that many will become "redundant" and cause investors heartburn. Don't even get me started on crypto - when anyone can conjure gold from the ether, what makes all "coins" to be equal (unless, of course, all are worth nothing). If the US government wants to corner the market on crypto, but no one else values it, is it really worth anything?
When people start not only betting on outcomes on the above bets, but on the results of those outcomes which have been bundled and securitized, the risks are immense (I think Wendy's metric of 50% is likely way under-stated). To a large extent, the 2008 financial meltdown was caused when the computers storing the names of derivative counterparties were turned off at their demise. What would be the result of a successful cyberattack which mimics that result? Food for thought.
Jeff
No. of Recommendations: 0
Obviously we learned nothing in 2008-9.
No. of Recommendations: 0
In the land of the blind, we can only hope our one-eyed sight will be sufficient.
Jeff
No. of Recommendations: 2
Steve wrote, "Of course they count "securitization" in GDP."
No, Steve, that's not true.
GDP (Gross Domestic Product) measures the total market value of all final goods and services produced within a country's borders in a specific time period. The key components of GDP are consumer spending, business investment, government spending, and net exports (exports minus imports).
The original loan is counted in GDP as a financial service provided by a bank. But any securitization or derivatives on that loan would be double-counting so they are not part of GDP.
Wendy
No. of Recommendations: 6
GDP (Gross Domestic Product) measures the total market value of all final goods and services
From your post:
Securitization accounts for approximately 50% of U.S. GDP,
The following sales pitch for securitization:
they are tools of lowering borrowing costs, creating investor liquidity, distributing risk efficiently, and expanding opportunities for capital to be deployed across a variety of markets far more expansively (from automobiles to consumer goods to commercial real estate to aviation to anything else creative minds can figure out a way to efficiently securitize). European resistance to securitization is not the opposite of “financialization” – it is resistance to growth and the unlocking of value creation..
This is the sort of argument the financial advisor industry made, when Congress attempted to hold them to a fiduciary standard.
When I was working on my bachelors, in the mid 70s, we talked about the use, and abuse, of leverage. Leverage is great, when things are going well, because it amplifies things like ROI, and makes the honchos look like geniuses. Leverage is poison, when things don't go well, because there are consequences for not servicing the debt. Today's "innovating financial products", are just different mutations of leverage, to make more money fast, without worrying about long term consequences, if things don't go according to plan.
Steve
