There's something about a global economic crisis that takes all the satisfaction out of having an "I-told-you-so" moment. Not only does it seem tacky to point out that you warned about securitization and the dispersion of risk years ago, but it's hard to feel smug when, like everyone else, you still managed to lose a huge chunk of your 401(k).
So imagine my delight at reading in Felix Salmon's Reuter's blog his notes from a speech to the Regional Bond Dealers Association, in which he appears to admit that he was wrong about securitization. Even better, he appears to admit that he and Alan Greenspan were both mistaken about the benefits of risk dispersion:
"[L]ike most of us, he writes, I’ve changed my view on risk considerably over the past couple of years. . . . I believed along with Alan Greenspan that when it comes to debt instruments in general . . . 'These instruments enhance the ability to differentiate risk and allocate it to those investor most able and willing to take it.' But if you look at what happened in practice, the art of securitization always seemed designed to create ever-increasing quantities of risk-free debt.
Ahhh. Now that seems like something I can enjoy.
Admittedly, I'm pinging Salmon for a critique he wrote of my position two years ago, but since taking swipes at others (including, on occasion, CFO) is his stock in trade, returning the favor seems appropriately personal and a lot less like dancing on the grave of America's investment banks.
Of course, Salmon may still think the concept makes sense (note how careful he is to say that it went wrong "in practice"). If so, as I said two years ago, "he's going to win the debate anyway, because, as a $2.1 trillion market, securitization is too big to fail." If I didn't exactly predict the existence of the TALF when I wrote that in 2007, I still probably came closer than anyone could have imagined. So what about it, Felix? Is TALF perpetuating our addiction to cheap, repackaged junk debt, or can Tim Geithner walk the fine line between securitization on life support and securitization on steriods?
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