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July 23, 2010, 7:15 p.m. EDT
Financial reform bill claims first victim
Asset-backed securities issuance freezes as rating agencies balk
By April H. Lee and Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) -- It took less than a day for the Wall Street reform bill to claim its first victim.
President Barack Obama signed the legislation into law on Wednesday. Soon after, the asset-backed securities market ground to a halt.
Ford Motor Co., which was planning to sell a package of auto loans to investors, pulled the deal. There have been no asset-backed securitizations in the U.S. this week, according to Dealogic. That compares to a weekly average of almost four deals worth $1.83 billion in the previous ten weeks.
Asset-backed securities, or ABS, are types of debt that are backed auto loans, credit cards and other assets. The market is an important source of money for new consumer loans. Without access to the market, banks and other companies like Ford may struggle to offer more financing to customers, denting sales and restraining the economy.
"You can't throw the baby out with the bath water," Joseph Mason, a professor in the department of finance at Louisiana State University, said in an interview. "Securitization is tremendously useful to banks in providing greater access to capital -- and more money for banks to lend fuels U.S. economic growth."