|
| |
N° 275 |
  |
| February 2008 |
| Understanding the Structured Credit Crisis |
| Michel Aglietta |
|
| The financial crisis which is raging in the West is quite strange. Why is it that repayment problems in a very particular
segment of the United States housing finance market (subprime mortgages) has degenerated into a generalised credit
crisis which could have completely paralysed the international bank liquidity market without the repeated and massive
intervention of the central banks? To understand this we have to delve into the arcane world of the financial model
called the securitization of debts which has become prevalent in the United States since 2001. Recent studies have
shown that this model leads to reduced risk aversion on the part of lenders and an under assessment of the risk
attached to loans. The spreading of risk, which is the purpose of securitization, is accompanied by a loss of
information on the risk of loans right along the chain, from the end borrower to the buyers of tranches of secured
debt. This financial model has become a loss generating machine. |
Abstract |
| |
|
| To visualise
the full text document, use Acrobat
Reader |
Full text (pdf) |
| |
|
|
|
|
|
|
|
|
|
|
