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Securitization the Main Driver of Velocity of Money

In a previous article, we talked about the rise and fall of the economy being linked to the so-called velocity of money. Perhaps 70% of this "velocity" came from securitization.

That's according to fellow writer Andrew Butter, who correctly observed, "The game was as follows: "What happened was a bunch of shysters on Wall Street cooked up a load of dud securities and sold them all over the world, and then a bunch of morons wrote naked insurance on them and now they can't pay out on the claims."

We couldn't have said it better. We disagree with him though, when he says securitization is the solution.

"Now no one wants to buy that stuff, good or bad, and it's impossible to tell the difference without opening up every tin; even then you have to be an expert, (they got names on them like SAMIII05AR7, like viruses)."

That sounds like the desciption of a problem.

It's bad enough to have "monetary velocity" held hostage to such a degree by a single source. It's even worse when that one source has the potential to go terribly wrong. The soluation has to be to diversify sources of velocity, while keeping a close eye on this, the most dangerous one.

And we would have done better to forego some of the benefits. Without securitization, and the bubbles in lending and real estate, the employment rate over the past decade would have been more like 6% than 4%, because there would been fewer jobs for mortgage brokers, builders, and derivatives traders (and people that "support" them, including workers at restaurants and nightclubs). On the other hand, there might not have been the waste of resources that is leading to 9% unemployment today.