Securitization, Financialization, Loans, and Asset Classes

Securities were initially things like stocks and bonds - functionally promises to pay. Modern securitization includes other such debts--mortgages and credit card debts and invoices and whatever else. 

Formally, a security is just a 'tradable asset'. Functionally, it's also representative instance of an asset class, such that one instance of a security is like another, such that the two are for all effective purposes, similar. So securitization of unlike things is difficult, a limitation overcome through grading. The entire pleroma of a thing are divided into classes on the basis of some metric (age, credit score) and sold on that basis, such that things with a graded group are more similar to one another than to another graded group. Imperfect, but it reduces the variance of any given sample.

But once the grading criteria are established, the metric starts to bias production. The value of something is what is can be securitized as, and how something can be securitized depends on its grade, and its grade depends on whatever metric is being used. 

Standardization is hostile to edge cases, extensions, innovations, etc, because they are risky--they make something difficult to grade, so that something that might otherwise automatically be a B grade might receive a C grade. Likewise, there is no point in including A-class attributes in an otherwise B-class product--it will never be included in the B class. So there is every incentive for the product to aim for the 'lower edge' of each class--just good enough to be included. Due to this dynamic, over time, the median quality of each class tends to fall, and new sub-classes get introduced to identify where things fall within each sub class. So securitization drives both standardization and enshittification. 

Its worth saying that the more of the economy that is securitized, the more of the economy that can be financialized, and the more things financiers can profit from the buying, selling, holding, and insuring. So much of the finance industry is extremely interested in figuring out how to financialize things by converting them into securities. Hence the interest in both NFTs and BitCoin. 

Using more granular systems like credit scores, rather than classes, also lends itself readily to thresholds and hence to threshold effects.  A credit score of 649 is 'sub-prime', a credit score of 651 is 'prime'; a credit score of 790 is 'prime', a credit score of 810 is 'super-prime'. Indeed, classification based on scores may actually be worse than those based on classes, if less prone to enshittification.