Question

Regarding the 2007-09 Financial Crisis, What role did securitization and the use of mortgage-backed securities play in the crisis? Does your answer suggest that regulators should prohibit the securitization process?

Answer 1

securitization and mortgage backed securities played an important role in the 2008 recession because securitization was completely based upon the real estate Assets and mortgage was completely based upon the real estate industry so once the real estate industry has collapsed then the contagion was spread in entire financial market and it led to a global meltdown inform of 2008 recession.

it all started with bundling down all the bad securities with the good securities and floating them into the market as collateralized debt obligations which is a form of the mortgage backed securities and then all the persons were so believed of the rating agencies that they blindly bought all the securities and these were bad investment which were disguised as good credit rating and that lead to a bad investment into the Asset class and when the bubble burst the housing market completely crashed and the housing assets completely lost its value so entire process was securitization and mortgage backed securities was completely faultered and that led to a financial meltdown.

securitization and mortgage backed securities plays the primary role in the crisis with the help of the bad credit rating and Euphoria in the market which was seen through exposure by derivative market through credit default swaps and which were triggered by default by various investment bankers and commercial bankers.

Regulators should never prohibit the securitization process because securitization process will offer a chance for various credit worthy buyers to secure loans and they will be really having good value for their assets so I think those credit worthy buyers should be having access to the securitization process & securitization process should not be prohibited because it will be offering the highest credit flow and high liquidity in the market but it should be properly regulated and only loan should be issued to these buyers who have a very good creditworthiness