Question

Describe the process of “securitization” in your own words.  (NOTE: A cut-and-paste definition from any online source will earn you zero points for this answer.  Use the textbook.). Was this process solelyresponsible for the financial crisis of 2007 – 2009?

Answer 1

Securitization is process that boost the liquidity in the market. Various financial assets are combined together to form a consolidated financial instrument which is issued to the investors by the process of securitization. Here the assets are converted into the securities. The financial instruments can frees up regulatory capital by the securitization process. Bringing finalcial and capital markets together, is one of the benefit of securitization.

Securitization played an major role in the financial crisis that causes at 2007-2009. The beginning of crisis is from the real estate market is U.S.A, then it spreads all over the world quickly. The rending standard relaxation, government policy for house ownership and low interest rates, created the bubble in the USA housing market. New source of funding to the banks and credit risk bear to the investors were opened by the securitization of assets. The bank sectors led to the subprime loans because of this new era. But here the borrowers cannot guarantee loan with their fortune. Therefore many borrowers are compelled to sell their houses and resulted the bubble in housing market in U.S. The price came down and bubbles released . This created financial crises.