i-manager Publications

Securitization and the Subprime Mortgage Crisis of 2008

Chao-Hui Yeh*

I-shou University, R.O.C.

Periodicity:December - February'2009
DOI : https://doi.org/10.26634/jmgt.3.3.237

Abstract

This article provides a review of the securitization instruments in the context of the subprime mortgage crisis of 2008. The decreasing housing prices in the U.S. caused the increasing mortgage defaults and the increasing mortgage defaults caused this subprime mortgage crisis and this crisis is exploded by securitization instruments (e.g., CDS) which are just too complex to see their risks. This article will provide a specific classification of securitization instruments and distinguishes between two main classes of securitization instruments. The first classes are mortgage-backed security (MBS), asset-backed security (ABS), asset-backed commercial paper (ABCP) and cash-flow collateralized debt obligation (CDO).The second category of securitization instruments includes credit default swap (CDS) and synthetic collateralized debt obligation (synthetic CDO). Finally, this article ends with a short discussion of the roles of the credit rating agency (CRA) in the financial crisis.

Keywords

Securitization, Subprime Mortgage Crisis.

How to Cite this Article?

Chao-Hui Yeh (2009). Securitization and the Subprime Mortgage Crisis of 2008. i-manager’s Journal on Management, 3(3), 10-17. https://doi.org/10.26634/jmgt.3.3.237

References

[1]. Speech by Alan Greenspan, “Regulation, Innovation, and Wealth Creation", Federal Reserve Website, Sept. 25, 2008,available at http://www.federalreserve.gov/boardo cs/speeches/2002/200209252/default. htm.

[2]. Alistair Barr, Greenspan Sees ‘Serious Problems‘ with CDS, Marketwatch.com, Oct. 23, 2008, available at http://www.marketwatch.com [enter search keywords "Greenspan Testimony Credit Default Swaps," then follow first result).

[3].Erik Sirri, Statement to the House Agricultural Committee, to Review the Role of Credit Derivatives in the U.S. Economy, Hearing, Oct. 15, 2008, available at http:/lagriculture.house.govlhearings/statements.html.

[4]. J. Burns. "Former Ratings—Firm Officials Blame Conflicts for RosyViews.“ Wall Street Journal (October 23, 2008], A4.

[5]. B. Jameson. "The Blunders that Led to Catastrophe.“ NewSclentist[September 27, 2008],8—9.

[6]. ISDA is the largest global financial trade association, with 850 member firms. Chartered in 1985, its role is to promulgate standardized OTC derivatives documentation and lobby on behalf of its member firms, which include all major institutions that participate in the OTC derivatives markets See Pickels (2008), supra note i 4.

[7]. ISDA Mid-Year 2008 Market Survey Shows Credit Derivatives at $54.6 Trillion, ISDA News Release, Sept. 24, 2008.

[8]. DTCC Deriv/SERV Trade Information Warehouse Reports, DTCC Website, available at http://www.dtcc.com /products/deriserv/data/index. ph

[9]. Yuliya Demyanyk et al., Understanding the Subprime Mortgage Crisis, Aug.

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Securitization and the Subprime Mortgage Crisis of 2008

Abstract

Keywords

How to Cite this Article?

References

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