When banks sell off their loans, which is what an MBS is, it fundamentally changes the ratio of money:debt originating from the banking system. In a non-MBS banking system, there is roughly the same amount of deposit money flowing around as there are loans. In an MBS using banking system, there are significantly more loans being created - unlike the initial creation of a loan by a bank, the sale of the MBS does not create any additional money.
So the underlying economy may or may not need the extra debt, but creating it this way is anything but side effect free. Granted neither is creating normal bank debt given the money supply side effects.
The evidence of history suggests that an economy can get away with small amounts of this, but at some point there is too big an imbalance of debt to money, and this causes solvency issues in paying back the debt. And that´s when everything all goes terribly wrong.
But it´s a $1 trillion a year industry in the USA, so perish the thought that minor issues like systemic stability should be allowed to interfere with that. On the plus side, China introduced them a few years ago as well, so it will be very interesting to see what happens there as things play out.
For a deeply depressing paper, considering when(2000) and where (US Federal Reserve) it was written, see:
https://www.sciencedirect.com/science/article/pii/S037842669...