Would George Osborne and HM Treasury like help in getting a small business bond market going?

A Telegraph article reports that Chancellor George Osborne has HM Treasury working on plans to create a small business bond market.

The Chancellor told the Treasury Select Committee that officials were poring over plans to package up small business loans into bundles that could be bought and sold by institutional investors. 

Mr Osborne said this practice of securitising small business loans had been ended by the credit crunch but he hoped to support small businesses by giving them another source of funding. 

"Restarting it is not easy and we're not aware of any country that has successfully done this on a large scale since the crash," Mr Osborne told the Committee. "It's a big challenge. We're actively looking at it."

Regular readers know that the reason it has been difficult to restart the practice of securitization is that the buyers are on strike until such time as they are provide with ultra transparency into the underlying collateral and its performance.

Leading up to the credit crunch, buyers were under the mistaken impression that the rating agencies had access to and were monitoring the current performance of the underlying collateral so as to make timely adjustments to their ratings.

In the fall of 2007, the rating agencies testified before the US Congress that they had no different access to information on the underlying collateral performance than did the buy-side.

With this testimony, the structured finance market began to freeze and by September 2008 had frozen over.

The key to thawing the structured finance market and ending the buyers' strike is to provide current information on the underlying collateral performance so the buyers can know what they own.

To do this requires that information on the collateral is updated on an observable event basis.  An observable event involving the underlying collateral includes a payment is made, a payment is missed, the obligor defaults, the obligor declares bankruptcy and the collateral is modified.

Your humble blogger is looking forward to talking with representatives of HM Treasury, consulting with them and coordinating a conflict of interest free ABS data warehouse to restart the structured finance market.

Finally, please note, your humble blogger was recently approached by representatives of the largest investors in structured finance securities (for investors, think pension funds, insurance companies and mutual funds) about helping them create RMBS 2.0.