From Jonathon Shapiro at the AFR:
Bit of contradiction here, no? If the securitisation market is “almost back to its glory days” then why is the prospect of the government exiting it so horrific?
The answer is that the market is nothing like almost back to its glory days. 1% over swap is still a very wide spread when compared to 2007 when deals were being done at under 20bps over swap. And there is only enough new RMBS activity today to see the market treading water or offering minimal growth:
Despite this, exiting the market is exactly what the government should be aiming to do. Arguably it should never have bought RMBS in the first place given the moral hazards that that entails. Funding basically unregulated credit cavaliers is not my idea of good policy.
It might also be argued that the securitisers should carry their fair share of the macroprudential tightening slowly underway around the banks and increasing the supply of RMBS is a way of doing just that.
I’m not going to argue against Mr Shapiro’s line that this is more ad hoc government tinkering to improve the Budget. I don’t know if that is true.
However, the end result does not seem at all unreasonable.