Journal Article

The 2007 Meltdown in Structured Securitization: Searching for Lessons, not Scapegoats

Gerard Caprio, Aslı Demirgüç-Kunt and Edward J. Kane

in The World Bank Research Observer

Published on behalf of World Bank

Volume 25, issue 1, pages 125-155
Published in print February 2010 | ISSN: 0257-3032
Published online February 2010 | e-ISSN: 1564-6971 | DOI: http://dx.doi.org/10.1093/wbro/lkp029
The 2007 Meltdown in Structured Securitization: Searching for Lessons, not Scapegoats

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The intensity of the crisis in financial markets has surprised nearly everyone. The authors search out the root causes of the crisis, distinguishing them from scapegoating explanations that have been used in policy circles to divert attention from the underlying breakdown of incentives. Incentive conflicts explain how securitization went wrong, why credit ratings proved so inaccurate, and why it is superficial to blame the crisis on mark-to-market accounting, an unexpected loss of liquidity, trends in globalization, and deregulation in financial markets. The authors' analysis finds disturbing implications of the crisis for Basel II and its implementation. They conclude by drawing out lessons for developing countries and identifying reforms that would improve incentives by increasing transparency and accountability in government and industry alike.

Keywords: G21; G28; G32

Journal Article.  13651 words. 

Subjects: Development Planning and Policy

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