Ordering Information
Paper Text,
336 pages
978-0-8157-0336-5,
$32.95
Once heralded as a financial innovation to diversify risk and enable Wall Street to finance Main Street, securitization helped create the subprime mortgage meltdown of 2006. In this implosion, debt was absorbed by a concentrated group of financial entities, and in 2008 credit markets consequently froze. So why were securities backed by subprime debt deemed so desirable? And what is the future of securitization? In Prudent Lending Restored, noted economists Yasuyuki Fuchita, Richard Herring, and Robert Litan bring together a top-flight group of financial experts to answer these all-too-timely questions.
Examining the growth of complex securitized structures in the United States and other markets, the authors provide a timeline of key events and offer an explanation for the resulting financial crisis. They argue that flawed financial engineering and a lack of transparency incentivized risky lending, while credit rating agencies failed to analyze securities. They also examine the reactions of the central banks and provide a survey
of crisis-generated litigation through October 2008.
From this analysis, Prudent Lending Restored offers suggestions on how we can reform securitization, including a solution to insure the mortgage market against default risk. The book provides strategies to increase transparency and encourage more prudent lending. Thus through reform the securitization process might have a brighter future, where borrowers and lenders reap the benefits of inexpensive, accessible loans, without causing systemic damage to the economy.
ABOUT THE AUTHORS
Richard J. Herring
Richard J.Herring is the Jacob Safra Professor of International Banking and professor of Finance at theWharton School, University of Pennsylvania where he is also codirector of theWharton Financial Institutions Center. He has published widely on various topics in financial regulation and international finance.
An economist and lawyer who has served in a variety of federal agencies and White House posts, Bob Litan is an expert on antitrust; banking; Internet policy; and other financial and regulatory issues.
Yasuyuki Fuchita
Yasuyuki Fuchita is senior managing director at the Nomura
Institute of Capital Markets Research in Tokyo. He is coeditor, with
Robert Litan, of Pooling Money (Brookings, 2008) and New Financial Instruments and Institutions (Brookings, 2007).