The future of securitization?

For all the angst we've experienced over securitization in the credit markets, the fact remains that if done well it can add a massive amount of liquidity to the system--and that fuels the economy. So even as banks are still struggling with toxic assets, people are concerned that as people lose more trust in securitization the economy will continue to suffer.

This is how the New York Times puts it: "Until more of the securitization market revives, or some new form of financing takes its place, a wide range of loans needed to secure a lasting economic recovery will remain elusive." But columnist Paul Krugman has a question: "Are we still convinced that securitization is a far superior system to conventional banking, and if so why?" He suggests "lending out of all those excess reserves they currently hold. Or to put it differently, by the numbers there's no obvious reason we shouldn't be seeking a return to traditional banking, with banks making and holding loans, as the way to restart credit markets." 

For more:
- here's the New York Times article

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