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Securitization And Systemic Risk Amid Deregulation And Regulatory Failure, Patricia A. Mccoy, Andrey D. Pavlov, Susan M. Wachter May 2009

Securitization And Systemic Risk Amid Deregulation And Regulatory Failure, Patricia A. Mccoy, Andrey D. Pavlov, Susan M. Wachter

Boston College Law School Faculty Papers

During the recent housing boom, private-label securitization without regulation was unsustainable. Without regulation, securitization allowed mortgage industry actors to gain fees and to put off risks. The ability to pass off risk allowed lenders and securitizers to compete for market share by lowering their lending standards, which activated more borrowing. Lenders who did not join in the easing of lending standards were crowded out of the market. Meanwhile, the mortgages underlying securities became more exposed to growing default risk, but investors did not receive higher rates of return. Artificially low risk premia caused the asset price of houses to go ...


The Failure Of Private Ordering And The Financial Crisis Of 2008, Brian J.M. Quinn Apr 2009

The Failure Of Private Ordering And The Financial Crisis Of 2008, Brian J.M. Quinn

Boston College Law School Faculty Papers

This Article analyzes the Financial Crisis of 2008 in the context of failures by market participants to engage in private ordering thus leading to opportunistic behavior at the expense of market stability. The Financial Crisis of 2008 offers a decidedly negative verdict on a decades-long project to deregulate financial markets and rely on private ordering mechanisms, including securitization and default swaps, to mitigate opportunistic behavior and improve market efficiency. Although the regulatory approach of the past two decades, which relied in great measure on private parties fending for themselves, helped to generate a number of innovations and positive developments in ...