This is from the Economist.com at http://www.economist.com/finance/displayStory.cfm?story_id=13061713&source=features_box_main :
If securitized loans have a 25% ($150B/$600B) default rate and *ALL* alt-A debt has a 46% ($600B/$1300B) default rate, than this implies that securitized loans are more prudent/safer/less likely to default tha nunsecuritized loans. Moreover, the following deductions can be made:
1. Securitized loans are $600B, and unsecuritized loans are $700B, for a total of $1300B.
2. Unsecuritized loans have a 64.3% default rate. [(25%)($600B) + (x%) ($700B)]/$1300B = 46%, and solve for x. X=64.3%.
Here are my few questions:
1. Why are unsecuritized loans safer?
2. I thought that one of the big deals in this whole Financial Crisis was securitization. The media has made it look so evil and wily. Please clarify.