Securitization

Basically, "securitization" refers to the process of turning something into a financial security. That process sounds sinister (and painful)...like, an evil genius would kidnap you and connect you to a machine that would squish and squeeze you and mix you with a fluid made of pure distilled contract language...until you came out the other side as a newly-pressed security.

It doesn't quite happen that way. Instead, the process involves pooling assets, and then issuing a security based on those assets.

Probably the most famous version of this system comes from mortgage-backed securities. It might count as a bad example to use the type of securitization that almost tanked the economy back in '08...but it still counts as a well-known example. In that instance, bundles of similar mortgages were put together. Then securities were issued based on those mortgages, which could be bought and sold on exchanges, like stocks or bonds.

Mortgage-backed securities aren't the only examples, though. Securitization can happen with pretty much any assets. You could use auto loans, or commercial mortgages, or debt based on receivables.

The general process involves bundling the similar items together and then issuing securities based on that asset pool. Those steps define securitization. Injecting gallons of liquified contract language is completely optional.