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The practice of securitizing mortgages is one of the main root causes of the financial crisis. Continuing the practice, which tends to increase risk, should be

The practice of securitizing mortgages is one of the main root causes of the financial crisis. Continuing the practice, which tends to increase risk, should be done only with extreme caution and sufficient financial regulation. A small snippet for context, although insufficient to explain a very complex problem: "In many ways, the practices employed by SIVs (Structured Investment Vehicles) and underwriters to structure MBS [Mortgage-Backed Securities] ... tended to magnify rather than reduce risk in the financial system. A key risk-enhancing design feature of MBS was the practice of tranching, whereby several categories of securities were created in each securitization issue ... the senior tranche would have sold at its nominal value and would have been rated risk-free [despite comprising 85% of the entire MBS]." - "Banking: A Very Short Introduction" by John Goddard and John O. S. Wilson (pg 43-53)

balabaster 8y ago
I agree it should be done with caution and even more regulation. I disagree that securitizing mortgages was the absolute cause of the financial crisis. I do think that the manner in which it was done and the disregard with which it was executed was the cause of the financial crisis. With banks offloading risky debt as if it were AAA to other institutions, all passing the buck to someone else making it someone else's problem until the bubble imploded and everything fell to pieces - like a giant Ponzi scheme. I'm not saying that mislabeling wasn't fraudulent, it was. What I'm saying is that spreading the risk among your portfolio allowing those who need it to leverage lower interest rates is less predatory than forcing them to make interest payments they can't afford, thus keeping them in debt slavery longer. You spend less time in debt slavery if you don't have exorbitant interest rates making up the bulk of your loan repayments... this is why countless times, I end up buying a new car rather than used, because when the interest payments and restrictive loan terms are taken into account, the monthly payments for a new truck aren't significantly different than those for a previously owned. Sure, the used truck at 9% will be paid off 2 years quicker, but more of my money is paid back towards the privilege of having the loan instead of paying for the cost of the truck. I'm already paying that amount every month and I'm used to making those payments, would I rather pay off a used truck that I had to compromise on a whole bunch of features, or would I rather have the brand new truck with exactly the featureset I want at the same monthly rate, but for an extra couple of years? I don't mind the extra couple of years payment to have the one I really want - especially given that my monthly payments for both well within my budget. I don't want to pay for the loan. I want to pay for the truck. So that's the difference. Forcing someone to pay the higher interest rate means they can't have what they really need because they're paying more for the loan than they are for what they need. They could pay the same amount for a larger mortgage with lower interest rates and have the nicer home. I guess this is a long winded way of saying that despite the mortgage lender's fraudulent and underhanded execution, there is a perspective here that's valid.
thoughtstheseus 8y ago
Kroll Ratings has free reports on securitizations and the credit rating process. Check out the securitized aviation ratings.

balabaster 8y ago

I agree it should be done with caution and even more regulation. I disagree that securitizing mortgages was the absolute cause of the financial crisis. I do think that the manner in which it was done and the disregard with which it was executed was the cause of the financial crisis. With banks offloading risky debt as if it were AAA to other institutions, all passing the buck to someone else making it someone else's problem until the bubble imploded and everything fell to pieces - like a giant Ponzi scheme. I'm not saying that mislabeling wasn't fraudulent, it was. What I'm saying is that spreading the risk among your portfolio allowing those who need it to leverage lower interest rates is less predatory than forcing them to make interest payments they can't afford, thus keeping them in debt slavery longer. You spend less time in debt slavery if you don't have exorbitant interest rates making up the bulk of your loan repayments... this is why countless times, I end up buying a new car rather than used, because when the interest payments and restrictive loan terms are taken into account, the monthly payments for a new truck aren't significantly different than those for a previously owned. Sure, the used truck at 9% will be paid off 2 years quicker, but more of my money is paid back towards the privilege of having the loan instead of paying for the cost of the truck. I'm already paying that amount every month and I'm used to making those payments, would I rather pay off a used truck that I had to compromise on a whole bunch of features, or would I rather have the brand new truck with exactly the featureset I want at the same monthly rate, but for an extra couple of years? I don't mind the extra couple of years payment to have the one I really want - especially given that my monthly payments for both well within my budget. I don't want to pay for the loan. I want to pay for the truck. So that's the difference. Forcing someone to pay the higher interest rate means they can't have what they really need because they're paying more for the loan than they are for what they need. They could pay the same amount for a larger mortgage with lower interest rates and have the nicer home. I guess this is a long winded way of saying that despite the mortgage lender's fraudulent and underhanded execution, there is a perspective here that's valid.

thoughtstheseus 8y ago

Kroll Ratings has free reports on securitizations and the credit rating process. Check out the securitized aviation ratings.