When MS Financial Inc. failed to securitize a package of auto loan installment contracts in the third quarter of the year, red flares ofwarning must have exploded all over the spreadsheets. After all, securitization is the primary means used by consumer finance companies toraise revenue. This paper frequently turns over a few times and is subsequently packaged forsecuritization, and sold to another company in a transaction which turns it into asset-backed securities. Good theory, and itactually worked . . . for a while.
Some analysts think what happens is that a fragmented market turns inward.
Consolidation, which inevitably begets liquidation, occurs. The sub-prime industry already seems nervous about the future and predictions are that, eventually, this line of business is going to changeconsiderably. It may be that what we're seeing in MS Financial's case is one of the first mating dances in this business where smaller companies unite,even if it is only to face an uncertain future.