December 2010

Understanding the securitization crisis

's been four years since the beginning of the financial and economic crisis more 'serious since 1929.
worldwide measures have been taken to curb the so-called systemic risk by covering the debts of banks and financial institutions through public debt.
In Europe, some countries have found and are on the verge of collasso.Il un'abbassamento risk of living standards and a general impoverishment is visible to everyone.
I wonder: was including the origin of the crisis?
And also: who knows, he told us everything?
I have to say no to both questions.
The origin of the crisis is due to the use of sophisticated financial instruments and adapted for this purpose, but still was not taken any steps to prevent the destructive use and repetition of catastrophic events.

critical - part

securitizations represent real advances in loans that generate future cash or money-market investments should generate at least equal amount of receivables sold. It

can therefore be defined as extraction of current monetary value of assets and sources of future economic activity: they consume future resources in the face of future guarantees reliable and also uncertain. From this point of view, the fundamental difference between normal bonds, issued to rake in the credit market, and bonds related to a process of securitization is that while the former are issued against collateral in the current (eg mortgages) the latter are related to future income.

The process of securitization developed on subprime mortgages, has sent in a short reaction SIV is the chain that intermediary banks themselves, and what happened at increases in interest rates. All families of credit derivatives are developed from the need to address better the credit risk related to an increase of interest rates. As we have seen, but also the securitization, and with explosive force undergo the risk rates.

But the dangers of securitization does not end here, or in relation to interest rates, is developed at low rates (implying a default at the same growth) rate is high (which implies fact of having to pay high rates on bonds issued by SIV also at rates of falling and at a lower market value of the bonds)

There are two elements that make this fund highly dangerous instrument.

The first is that it is fundamentally characterized as an outrage against the future (and how to sell lunch tomorrow to eat today!)

The second is that it represents a form of money creation extra channels for the public.

The subtraction is accomplished in the future from the sale of receivables in the future as this Note that part of the operation, the part rule, and since there is a bond of purpose, is also void the need to use, really productive resources taken from the future and in fact they are not even treated as debt, but as assets. The securitization norm is a sort of securitization should develop initial investment and profits of the same size: this should have been and should be the general case. Otherwise, a securitization that is essentially intended to make financial provision creates what we call subtraction of the future. In summary we can add that if a securitization process starts to cover difficult financial balances it inevitably generates bad debt and increasing risks, if it is intended to recover unpaid debts the bond issue is expected on a speculative basis.

The second point is, however, by far the most important from the point of view of economic theory. The dream of the monetarist movement (let's call it for convenience) has always been one: to show that substantially in the long run the amount of money was neutral with respect to the real economy, and indeed it could be used intrinsic virtues: the fact that could create money out of monetary institutions and central banks have represented for many years to demonstrate their theorems. After the crisis of 2oo7 this is no longer plausible. The fact

to create money for extra public channels (that we call leverage, or

moral hazard, or securitization or that you simply attach all'ingordigia not change anything)

And 'The fact that it analyzed in terms of economic policy.

In other times, the depiction of the crisis was as follows: someone from outside the system

printing paper money and someone inside the system - the Central Bank - certifies the value.

The representation is primitive, but the same result: a massive destruction of real value!

The process of creating public money for extra channels, although it is behind the crisis of 2007 began a few decades earlier. In this time we are worn out and weakened the main instruments of government of the money from the system.

The main victim of this process were the interest rates. As it was stated that the creation of public money for extra channels, the money became less and less sensitive to interest rate movements. (Of course effect of the statement of the risk rate swaps)

From "Il sole 24 ore" to Tuesday, February 9, 2010 in the USA and we learn that only 21 of the main primary delears have access to the Fed Fund. In Europe, the intervention rate is still very effective even if less than 20 years ago.

This is very consistent with the usual "overthrow" of the monetarist movement: they are the interest rates that determine inflation, money supply is neutral. The current financial crisis is showing us instead the role of interest rates is also worn in the case of a will

enlargement of the monetary base.

This has many consequences. Since the role of interest rates on changes in the debt becomes almost negative, the governability of the debt of banks, companies and states but also is seriously in question .

This is a direct result of having injected liquidity into the system regardless of any parameter Journal, or to have created a credit market in the margins of the official .

The money created in the margins of the system for extra channels public is not as sensitive to interest rates that created the parameters and constraints official.

The analysis of the relationship between credit derivatives and the trend in interest rates will be the subject of a forthcoming study.