Securitization is a very useful activity in the abstract,
even for non financial firms.
It's bankruptcy remote when we create a securitization vehicle, it is bankruptcy
remote from the parent, and thus from any managerial risk of the parent.
And furthermore, it can use efficient liquidation itself
if it is in distress and the value of the underlying assets fall.
Altogether, there's a lot of efficiency gains to this.
And as long as you can do it in a way where the majority of the debt that has
been created is indeed safe, information insensitive debt,
then you have managed just like banks who created checking accounts
to create a financial instrument that is serving a very important purpose.
The problem happens when what you have created that used to seem safe and
information insensitive suddenly starts to seem like it is not safe.
That's the same problem that we've had in bank runs from the beginning of time.
If the bank had demand deposits and you thought of them as safe.
And the checks from that bank is safe, and then all of a sudden you got worried about
the underlying solvency of that bank, and those demand deposits were no longer safe.
That same thing is what happened in securitization,
and we will talk a lot more about that over the next few modules.
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