David L. Bahnsen, Chief Investment Officer and Managing Partner of The Bahnsen Group, posts a weekly analysis called "Dividend Cafe." Mr. Bahnsen is intelligent and has a unique take on the marketplace so I enjoy reading this.

thebahnsengroup.com - Dividend cafe

The latest Dividend Cafe makes a rather unique claim.

thebahnsengroup.com - Exceptional markets require an exceptional economic framework september

Exceptional Markets Require an Exceptional Economic Framework – September 5, 2025

...
(Capital) Market Forces

One extraordinary thing the United States has done is foster robust capital markets to promote economic growth. While many have decried “financialization” as somehow impeding economic progress, the United States has long used innovations in financial markets to facilitate risk-taking and the deployment of capital to all sorts of economic endeavors, and we have reaped the rewards.

Securitization accounts for approximately 50% of U.S. GDP, compared to about 7% in Europe. We have a $30 trillion GDP and $15 trillion in securitization issuance. The financial instrumentation I refer to is often demonized as “tools for Wall Street dealmaking,” when, in reality, they are tools of lowering borrowing costs, creating investor liquidity, distributing risk efficiently, and expanding opportunities for capital to be deployed across a variety of markets far more expansively (from automobiles to consumer goods to commercial real estate to aviation to anything else creative minds can figure out a way to efficiently securitize). European resistance to securitization is not the opposite of “financialization” – it is resistance to growth and the unlocking of value creation.... [end quote]

I wasn't sure what "securitization" means so I looked it up with Google Gemini.

Securitization is the same as derivatives.

For example, in the old days banks used to issue mortgages and hold them on the books. The banks carefully vetted every mortgage since a default would hit the bank directly. With securitization the bank can bundle many mortgages into a derivative which investors can buy fractions of. The income from the mortgage payments are then divided up among the owners of the fractions of the derivative. This gives all kinds of investors the opportunity to access cash flows. Meanwhile the bank takes the money from the issuing the derivative and creates more mortgages which then are re-packaged into more derivatives. The bank manages the cash flow from the derivative but is no longer at risk from defaults. Even Fed Chair Alan Greenspan said that derivatives help to spread risk.

What could possibly go wrong?????

Are derivatives the "secret sauce" for the growing U.S. economy? Or is the immense scope of securitization setting us up for another 2008-style financial crisis when the spread risk pulled down investors all over the world?

Wendy