There has been a lot of trust lost in securitization. The debt securitization markets are the ones that have financed student loans, home loans, corporate loans, and the ones that have allowed the banks to package their loans into securities and sell them to investors, which as you know played an important role as to how we got into this big mess in the first place. Depending on the type of loan, some securitization markets have fallen 40 to almost 100 percent.
Debt-securitization markets used to be about 55 percent of all credit in the United States, but are now slowing economic recovery and making loans scarce.
After losing so much on packages of subprime mortgages that were basically destined to default, investors have lost trust in securitization. Because of this our government has spent over $1 trillion trying to save the markets, and many of these markets are basically only operating because the government is holding them up. The Federal Reserve has spent over $905 billion (it has a target of 1.25 trillion), trying to keep mortgage rates low by buying government-guaranteed mortgages.
The government is planning on withdrawing its support (while policy makers hope private investors will return to the markets), but who knows how that is going to pan out. The securitization markets must be re-established. Because until they are, we may not have much significant economic growth.