Securitization: A Financing Vehicle for All Seasons?
Securitization is considered to be one of the biggest financial innovations of the last century. It is also regarded as both a catalyst and a solution to the 2008 financial crisis. Once a popular method of financing the mortgage and consumer credit markets, aspects of the global securitization market are now struggling to revive. In this paper, I discuss the role that ethics played in securitization prior to the 2008 financial crisis and find that it is not an obvious story of moral failures, but rather that it lies in more subtle elements of the financial system. The ethics uncertainty role in the securitization story is one of flawed incentives and the shifting of responsibility for handling risk. The role of securitization and the ethics of risk transfer have rarely been discussed explicitly in the literature. The historical origins of securitization and lessons learned from previous flawed uses of the process are also provided. I also detail the various global institutional reform proposals that have taken place. Moving forward, it is crucial to understand the causes, consequences, and ethical implications of securitization in the financial crisis so as to help individuals and managers better assess risk, align incentives, and design appropriate policy responses.
KeywordsSecuritization Finance ethics Corporate responsibility Asset-backed securities Credit crisis Ethics Finance
JEL ClassificationA1 B6 F3 G1 G2 G21 G23 G24 G28
The author wishes to thank: John Boatright, Gary Munro (the Section Editor), Tom Berglund, Praveen Malla, seminar participants at the Hanken School of Economics, Finland and participants at 18th IESE Business Ethics Symposium, Barcelona, Spain.
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