Economic Themes (2013) 51 (4) 3, 657-670
Borko Krstić, Mirjana Jemović, Jelena Radojičić
Abstract: The intensive development of technology and the trend of financial globalization contributed to the fact that the volume of transactions in the financial market surpasses by several times over the volume of transactions in the real sector, which has identified a growing trend of separating financial from the real economy. In the race for ever-increasing profit, financial institutions have succeeded to, due to the so-called informal deregulation, acquire through a variety of financial innovation greater de facto freedom of action in the financial markets. Securitization is seen as the biggest financial innovation of the 20th century, which, based on the contractual assignment of receivables, transformed the less liquid claims (based on loans, credit cards, etc.) into more liquid forms, the so-called mortgage-backed securities. Thereby, issuers of securities are coming to liquidity at a lower cost and the risk of holding long-term bank loans (mainly mortgage) passes to the buyers of mortgage securities. Despite the indisputable benefits of this financial innovation, the need for performing a number of iterative actions and involvement of a number of institutions makes this a very complex mechanism. The crisis that hit US mortgage market in 2007 was initiated just by securitization of “bad mortgages”. Therefore, the securitization of loans has been distinguished as a mechanism for the formation of “speculative bubble”, thus causing the financial crisis of global proportions. In this sense, the question is whether the solution should be sought in the re-regulation of securitization of loans or it will only delay solving the problem?
Keywords: securitization; speculative bubble; financial crisis; reregulation
MORTGAGE MARKET, SPECULATIVE BUBBLES AND THE GLOBAL FINANCIAL CRISIS
Borko Krstić, Mirjana Jemović, Jelena Radojičić
Abstract: The intensive development of technology and the trend of financial globalization contributed to the fact that the volume of transactions in the financial market surpasses by several times over the volume of transactions in the real sector, which has identified a growing trend of separating financial from the real economy. In the race for ever-increasing profit, financial institutions have succeeded to, due to the so-called informal deregulation, acquire through a variety of financial innovation greater de facto freedom of action in the financial markets. Securitization is seen as the biggest financial innovation of the 20th century, which, based on the contractual assignment of receivables, transformed the less liquid claims (based on loans, credit cards, etc.) into more liquid forms, the so-called mortgage-backed securities. Thereby, issuers of securities are coming to liquidity at a lower cost and the risk of holding long-term bank loans (mainly mortgage) passes to the buyers of mortgage securities. Despite the indisputable benefits of this financial innovation, the need for performing a number of iterative actions and involvement of a number of institutions makes this a very complex mechanism. The crisis that hit US mortgage market in 2007 was initiated just by securitization of “bad mortgages”. Therefore, the securitization of loans has been distinguished as a mechanism for the formation of “speculative bubble”, thus causing the financial crisis of global proportions. In this sense, the question is whether the solution should be sought in the re-regulation of securitization of loans or it will only delay solving the problem?
Keywords: securitization; speculative bubble; financial crisis; reregulation
