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Securitization and the Way We Live Now

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Securitization and the Global Economy

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Abstract

In 1858 William Gladstone wrote, “Finance is, as it were, the stomach of the country, from which all other organs take their tone.”1 This sentiment still rings true (Mason 2015; Turner 2015). Mukunda (2014) describes the financial system as the “economy’s circulatory system” and the large banks as “the heart”. Furthermore, (Mukunda 2014) attributes the “enlarged heart” of the US economy to the impact of financialization. Financialization is a term used to describe the expansion of financial trading associated with the abundance of new financial instruments (Phillips 2008; Orhangazi 2008; Krippner 2009). The increasing influence of financial markets and institutions impacts other societal institutions (including the government) placing a reliance on short-term liquid assets. Eventually, investment in real assets is crowded out by financial asset investment, an activity Orhangazi (2008) describes as “distributive” rather than “creative”. Due to the transference of income from the real sector to the financial sector, financialization is also credited with contributing to increased income inequality, wage stagnation, increased private and public debt, ownership concentration, and destabilizing economies due to an increasingly complex and opaque financial system (Palley 2007; Engelen 2008; Kindleberger 2011; Giron and Chapoy 2013; Rajan 2010; Legoarde-Segot 2015). Since 1973, in many developed countries, debt has soared and wages have stagnated. If wages stagnate and more profits are generated from mortgage and credit card loans, there will reach a point where this is clearly not sustainable.

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  1. Seattle, Washington, USA

    Bonnie G. Buchanan

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Appendices

Appendix 1: Securitization Framework

figure a

Appendix 2: A MBS Waterfall Structure

figure b

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Buchanan, B.G. (2017). Securitization and the Way We Live Now. In: Securitization and the Global Economy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-34287-4_1

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