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Ambiguity in Securitization Markets
Report

Ambiguity in Securitization Markets

Alyssa G. Anderson
Federal Reserve Board, 2015
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Background

Recommendation

As economies develop, debt plays an ever-greater role in supporting consumption and growth. Banks now rely heavily on selling the loans they extend, so hiccups in the securitization markets can lead to abrupt slowdowns in lending. Securitization was once an esoteric part of Wall Street, of interest only to financial types, but it’s now critical for the economy’s health. getAbstract recommends this innovative analysis by economist Alyssa G. Anderson on why securitization markets failed in 2008 and how to reduce the risk of a recurrence.

Take-Aways

  • In October 2008, markets for asset-backed securities (ABS) and collateralized debt obligations (CDOs) came to a halt, as investors were unwilling to purchase securities at any price.
  • Risk perceptions typically drive prices, but securitization markets froze as ambiguity – the inability of buyers to determine risk – took over.
  • ABS and CDO markets are particularly vulnerable to ambiguity because of their complexity.

About the Author

Alyssa G. Anderson is an economist with the Board of Governors of the Federal Reserve System.

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