I see frequent commercials on TV with Muriel Siebert, the “First Lady of Finance,” crowing that her firm has never invested in “derivatives” or “structured products.” Well this is like a commodities trader saying he has never invested in futures.

We have all, except for perhaps Ms Siebert, come to realize that “securitized debt” has long since become the dominant source of credit for our very advanced economy. Without it, we falter. And we know this, because this is what is happening now, lack of credit has reduced consumption, reduced consumption has caused lower production, lower producton means people lose their jobs. Perhaps the best example is the auto market. GM is not the only maker in trouble, Toyota has also asked the Japanese government for help.

If everyone followed Ms Siebert and refused to invest in “securitized debt” there would be way too little credit to revive the economy. In sum following her lead would lead us to an even worse situation.

No, we must allow the Feds to put more funds into Fannie Mae and Freddie Mac to allow these engines of the mortgage industry to issue, collect and “securitize” more mortgages that will in turn revive the housing market. We must allow the Federal Reserve to implement its “TALF” program that will buy up non-mortgage loans including auto loans, student loans, commercial loans, credit card debt and so on. “TALF” will buy these loans, bundled them and sell them as “securitized debt.” If this is not done, say goodbye to recovery, no matter how much stimulus President Obama puts into the mix.

Again, if we follow Ms. Siebert’s lead we guarantee failure. Funny, while she eschews “securitized debt” she shills “tax-free” municipal bonds. As if not buying “securitized debt” does not do enough to frustrate the recovery, she wants to deny the Feds funds to do anything. I guess she was Herbert Hoover’s advisor too.

Leo Cecchini
March, 2009