The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats
The intensity of recent turbulence in financial markets has surprised nearly everyone. This paper searches out the root causes of the crisis, distinguishing them from scapegoating explanations that have been used in policy circles to divert attention from the underlying breakdown of incentives. Incentive conflicts explain how securitization went wrong, why credit ratings proved so inaccurate, and why it is superficial to blame the crisis on mark-to-market accounting, an unexpected loss of liquidity, or trends in globalization and deregulation in financial markets. The analysis finds disturbing implications of the crisis for Basel II and its implementation. The paper argues that the principal source of financial instability lies in contradictory political and bureaucratic incentives that undermine the effectiveness of financial regulation and supervision in every country in the world. The paper concludes by identifying reforms that would improve incentives by increasing transparency and accountability in government and industry alike.
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dig-okr-109866309 |
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record_format |
koha |
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Banco Mundial |
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Estados Unidos |
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US |
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Bibliográfico |
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En linea |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
language |
English |
topic |
ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS |
spellingShingle |
ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS Caprio, Gerard, Jr. Demirgüç-Kunt, Aslı Kane, Edward J. The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
description |
The intensity of recent turbulence in
financial markets has surprised nearly everyone. This paper
searches out the root causes of the crisis, distinguishing
them from scapegoating explanations that have been used in
policy circles to divert attention from the underlying
breakdown of incentives. Incentive conflicts explain how
securitization went wrong, why credit ratings proved so
inaccurate, and why it is superficial to blame the crisis on
mark-to-market accounting, an unexpected loss of liquidity,
or trends in globalization and deregulation in financial
markets. The analysis finds disturbing implications of the
crisis for Basel II and its implementation. The paper argues
that the principal source of financial instability lies in
contradictory political and bureaucratic incentives that
undermine the effectiveness of financial regulation and
supervision in every country in the world. The paper
concludes by identifying reforms that would improve
incentives by increasing transparency and accountability in
government and industry alike. |
topic_facet |
ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS |
author |
Caprio, Gerard, Jr. Demirgüç-Kunt, Aslı Kane, Edward J. |
author_facet |
Caprio, Gerard, Jr. Demirgüç-Kunt, Aslı Kane, Edward J. |
author_sort |
Caprio, Gerard, Jr. |
title |
The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
title_short |
The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
title_full |
The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
title_fullStr |
The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
title_full_unstemmed |
The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats |
title_sort |
2007 meltdown in structured securitization : searching for lessons, not scapegoats |
publisher |
Washington, DC: World Bank |
publishDate |
2008-10 |
url |
http://documents.worldbank.org/curated/en/2008/11/10053071/2007-meltdown-structured-securitization-searching-lessons-not-scapegoats https://hdl.handle.net/10986/6309 |
work_keys_str_mv |
AT capriogerardjr the2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats AT demirguckuntaslı the2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats AT kaneedwardj the2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats AT capriogerardjr 2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats AT demirguckuntaslı 2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats AT kaneedwardj 2007meltdowninstructuredsecuritizationsearchingforlessonsnotscapegoats |
_version_ |
1807154889831219200 |
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dig-okr-1098663092024-08-08T16:32:55Z The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats Caprio, Gerard, Jr. Demirgüç-Kunt, Aslı Kane, Edward J. ACCOUNTABILITY ACCOUNTING PRINCIPLES AFFILIATES AMOUNT OF CAPITAL ARBITRAGE ASSET HOLDINGS ASSET POOL ASSET PRICES ASSET QUALITY ASSET SALES ASSET VALUES ASYMMETRIC INFORMATION AUDITING BAILOUTS BALANCE SHEET BALANCE SHEETS BANK LOANS BANK REGULATION BANK REGULATIONS BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SYSTEM BARRIERS TO ENTRY BID BOND ISSUE BOND ISSUES BONDS BOOK VALUE BORROWER BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL SHORTAGE CASH FLOWS CDS CENTRAL BANK CENTRAL BANKS COLLATERAL COMMERCIAL BANKS COMMERCIAL PAPER CONFLICT OF INTEREST CONFLICTS OF INTEREST CORPORATE BONDS CORPORATE DEFAULT CORPORATE GOVERNANCE CORPORATE STOCK CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT LINES CREDIT QUALITY CREDIT RATING CREDIT RATINGS CREDIT RISK CREDIT RISKS CREDIT SPREAD CREDIT SPREADS CREDIT STANDING CREDIT SYSTEMS CREDITORS CREDITWORTHINESS DEBT DEBT CRISIS DEBT OBLIGATION DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULT RATES DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITORY INSTITUTION DEPOSITS DERIVATIVE DERIVATIVE INSTRUMENTS DERIVATIVES DEVELOPING COUNTRIES DISBURSEMENT DUE DILIGENCE EARNING POWER ENFORCEMENT SYSTEMS EQUITY CAPITAL EQUITY VALUE EXCHANGE COMMISSION EXTERNAL CREDIT RATINGS FACE VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INSTABILITY FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FOREIGN MARKETS FORMS OF DEBT FUND MANAGERS GLOBAL MARKETS GLOBALIZATION HEDGE FUND HEDGE FUND MANAGERS HEDGE FUNDS HOLDINGS HOME LOAN HOME OWNERSHIP HOST COUNTRIES HOUSING HOUSING PRICES ILLIQUIDITY IMPLICIT SUBSIDIES INDIVIDUAL BOND INDIVIDUAL LOANS INFLATION INFORMATION SYSTEM INFORMATION SYSTEMS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTANGIBLE INTEREST RATE INTEREST RATES INTEREST-RATE RISK INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT STRATEGY INVESTMENT VEHICLE INVESTOR LOSS INVESTOR RETURNS ISSUANCE LENDER LENDERS LINES OF CREDIT LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN APPLICATIONS LOAN MARKETS LOAN OFFICERS LOAN PORTFOLIO LOAN QUALITY LONG-TERM INTEREST LOSS OF CONFIDENCE MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FOR CREDIT MARKET INTEREST RATES MARKET LIQUIDITY MARKET OVERSIGHT MARKET PARTICIPANTS MARKET PRACTICES MARKET RISK MARKET RISKS MARKET STRUCTURE MARKET VALUES MATURITIES MATURITY MATURITY TRANSFORMATION MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORTGAGE MORTGAGES MUNICIPALITIES NEW ENTRANTS OIL PRICES OLIGOPOLISTIC MARKET OUTPUT LOSS PENSION PENSION FUNDS PORTFOLIO PORTFOLIOS PRIVATE PARTIES PROBABILITY OF DEFAULT PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION REGULATORY FORBEARANCE REGULATORY STANDARDS REGULATORY SYSTEMS RESERVES RETURN RISK CONTROLS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK PREMIUMS RISKY LOANS SAFETY NET SAFETY NETS SECURITIES SHAREHOLDER SHAREHOLDER EQUITY SHAREHOLDERS SHORT-TERM DEBT SIMPLE BOND STOCK OPTIONS STUDENT LOANS SUBORDINATED DEBT SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY TAX TRADING TRANCHE TRANCHES TRANSACTION TRANSACTION COSTS TRANSFER RISK TRANSPARENCY UNDERLYING ASSET UNDERLYING ASSETS UNDERLYING MORTGAGES VALUATION VALUATIONS WAREHOUSE WRITEDOWNS The intensity of recent turbulence in financial markets has surprised nearly everyone. This paper searches out the root causes of the crisis, distinguishing them from scapegoating explanations that have been used in policy circles to divert attention from the underlying breakdown of incentives. Incentive conflicts explain how securitization went wrong, why credit ratings proved so inaccurate, and why it is superficial to blame the crisis on mark-to-market accounting, an unexpected loss of liquidity, or trends in globalization and deregulation in financial markets. The analysis finds disturbing implications of the crisis for Basel II and its implementation. The paper argues that the principal source of financial instability lies in contradictory political and bureaucratic incentives that undermine the effectiveness of financial regulation and supervision in every country in the world. The paper concludes by identifying reforms that would improve incentives by increasing transparency and accountability in government and industry alike. 2012-05-22T17:06:11Z 2012-05-22T17:06:11Z 2008-10 http://documents.worldbank.org/curated/en/2008/11/10053071/2007-meltdown-structured-securitization-searching-lessons-not-scapegoats https://hdl.handle.net/10986/6309 English Policy Research Working Paper; No. 4756 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank application/pdf text/plain Washington, DC: World Bank |