Debt, Deregulation and Financial Crises
Chapter 6: Securitization
Securitization shifted the channel for mortgage finance from an institutional framework to one that melded it into the capital markets and linked it to a growing number of financial sectors. The mortgages banks originated were removed from their balance sheets, pooled, and packaged as backing for securities. Banks saved on capital but, as the market for mortgage-backed securities (MBS) expanded and became the largest US credit market, the absence of capital backing for these securities introduced a higher level of risk that threatened all financial sectors and the net worth of households through MBS investments by pension funds.
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